China Mobile logged its fastest half-yearly profit growth in nearly three years as the world's largest mobile operator by subscribers attracts more high-end 3G users upgrading to smartphones.
China's three telecom carriers have been battling falling average revenue per user (ARPU) as they offer aggressive subsidies to widen their user base in the world's biggest mobile phone market, which has more than 900 million subscribers.
China Mobile, China Unicom and China Telecom Corp Ltd are trying to attract 3G and smartphone users by offering subsidized handsets from Apple, Samsung Electronics and HTC for multi-year contracts.
"If you look at the current competition, China Unicom is faring better attracting high end users compared to China Mobile and China Telecom," said Jane Wang, a Beijing-based analyst at research firm Ovum.
"China Mobile, like its competitors, is facing a dilemma of trying to lure more users with subsidies and trying to improve their bottomline because of these subsidies. It's a hard balancing act."
China Mobile's ARPU per month in the first half was 70 yuan, up from 67 yuan in the first quarter.
China Mobile, which had 616.8 million subscribers as of June including 35 million 3G users, reported a net profit of 61.3 billion yuan ($9.6 billion) for the six months ended June.
That was roughly in line with an average forecast of 59.8 billion yuan from seven analysts and up from 57.6 billion yuan a year earlier.
First-half profit growth of 6.3 percent was the fastest since an 18 percent increase in the second half of 2008.
Even though China has a huge number of mobile phone subscribers, the penetration rate is only around 70 percent, compared with neighboring Hong Kong's about 200 percent.
Many subscribers are low-end 2G users in rural towns and villages.
"Cross-industry competition arising from the convergence of industries, intensified competition among traditional telecommunications industry players and the slowdown of growth all present challenges," the company said in a statement.
China Mobile shares, which have lost 2.66 percent so far this year, fell 0.6 percent on Thursday morning, versus a flat main Hang Seng Index.
(Editing by Chris Lewis and Vinu Pilakkott)