China Mobile Ltd. (CHL), the world's biggest mobile operator by subscribers, reported Thursday a sharp slowdown in profit growth for 2009 and said it plans to cut capital spending in the next three years to save costs and maintain profitability.

Earnings growth momentum for China Mobile has been slowing down because of increasing competition from rivals China Unicom Ltd. (CHU) and China Telecom Corp. (CHA). Higher marketing and depreciation expenses for its third-generation mobile services are also likely to continue to weigh on its profitability this year, analysts say.

Chief Financial Officer Xue Taohai conceded that the company is seeing downward pressure on its margins and revenue as the telecom operator adds more low-income subscribers in rural areas and mobile tariffs are trending down.

After the commercial launch of its 3G mobile service in January 2009, China Mobile has been striving to improve its network coverage and handset quality to add subscribers.

China Mobile said Thursday the company still sees vast growth potential in the China market, driven by rising rural income and urbanization. The company will speed up the penetration of mobile Internet services such as mobile reading, video and music, it said.

The telecom operator reported that net profit for the 12 months ended Dec. 31 rose 2.3% to CNY115.20 billion (US$16.87 billion) from CNY112.63 billion a year earlier. The growth rate was sharply lower than the 30% it saw in 2008.

Full-year revenue rose 9.8% to CNY452.1 billion from CNY411.81 billion.

Its net profit was slightly higher than the average CNY114.88 billion forecast of 11 analysts polled earlier by Dow Jones Newswires.

China Mobile said it plans to cut its capital expenditure to CNY123 billion this year from CNY129.4 billion in 2009. It will lower its capital spending further to CNY98.0 billion in 2011 and CNY80.4 billion in 2012 as it has finished most of the construction of its third-generation network.

As China Mobile is pinning high hopes on its 3G mobile business for future growth, the company said it will spend CNY15.50 billion on various handset subsidies this year, up from CNY11.70 billion in 2009 -- a move analysts say could eat into the company's future profitability.

Chairman and Chief Executive Wang Jianzhou said the company aims to add more than 10 million 3G subscribers this year. At the end of January, China Mobile had 3.90 million 3G subscribers.

China Mobile added 65.0 million subscribers last year, including both second generation, or 2G, and 3G subscribers, bringing its total subscriber base to 522.28 million at the end of December.

China Mobile's average revenue per user--a key industry barometer to determine the long-term growth rate of telecom firms--slipped to CNY77 last year from CNY83 a year earlier.

Apart from organic growth, China Mobile is also keen on overseas expansion.

"The company will continue to look for investment opportunities in the overseas telecommunications sector but we have no specific target at this moment," said Wang.

The comments came after China Mobile said earlier this month it plans to buy a 20% stake in Shanghai Pudong Development Bank Co. (600000.SH) for CNY39.80 billion as the mobile operator seeks to expand into mobile financial services.

Wang also said that the mobile carrier hopes to conclude a deal with Apple Inc. (AAPL) to offer iPhones soon. And he hopes Apple can add China's home-grown 3G technology to iPhones. The company is also interested in launching Apple's iPad tablet computer in China, he said.

-By Lorraine Luk, Dow Jones Newswires; 852-2802-7002; lorraine.luk@dowjones.com
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