China Mobile Ltd., the world's largest wireless operator, posted a better-than-expected 28 percent jump in quarterly earnings as more users switched to mobile phones, despite sacrificing margins to woo poorer rural customers.

The firm and rival China Unicom Ltd. are slugging it out to sign up poorer customers in smaller cities and the countryside, with subscriber growth slowing in the world's largest telecoms arena -- chipping away at margins.

But China Mobile's shares slid 5.7 percent in the afternoon, pummeled along with other Asian markets by a worsening global credit storm.

It's quite unfortunate. For the company itself, the result is pretty good, said Y.K. Chan, fund manager with Phillip Asset Management, referring to a global markets downturn. It's a heavily weighted stock in the index and inevitably will come under pressure.

China Mobile posted April-June net profit of 20.34 billion yuan ($2.68 billion) versus 15.84 billion yuan a year earlier, based on Reuters calculations from first-half earnings -- beating an average forecast for 19.195 billion yuan, according to seven analysts polled by Reuters Estimates.

Full-year net profit is expected to rise 18 percent to 77.9 billion yuan, according to an average of 24 analysts' forecasts on Reuters Estimates -- a mild slowdown from a 23 percent rise in 2006.

The longer-term prospects for China's mobile operators depend on when the country's homegrown third-generation (3G) technology takes off. The arrival of 3G -- which will offer faster Internet access and improved video streaming -- may open up new sources of revenue for operators.

Most analysts expect China to issue 3G licenses before the 2008 Beijing Olympics, but some now predict licenses will not be handed out until 2009. And market watchers expect the launch to come after a restructuring of the domestic telecoms industry.

China Mobile will address analysts and media later on Thursday, amid reports it could get caught up in an industry shake-up that might see the wireless carrier swallow a smaller fixed-line rival.


Others were less upbeat.

According to our channel checks with contacts in Beijing, we have not sensed any signs of a restructuring anytime soon. We still retain our view that industry restructuring could be further delayed to as late as 2009, UBS analyst Jinjin Wang said in a report after the results.

For now, China Mobile said it would keep up a war in the countryside with Unicom, even as it prepares for the eventual rollout of 3G services.

In January-June, it gained more than 31 million customers net -- an increase of 21 percent over the number of new users in the same period of last year. But EBITDA margins slipped more than 3 percentage points, while net margins held steady.

In the second half of 2007, we will continue to focus on exploring rural markets, expanding value-added services and optimizing our network to provide strong support for future growth, it said in a statement.

Shares in China Mobile rose 18 percent in the second quarter, compared with Unicom's near-20 percent gain and a near-10 percent rally on the benchmark Hang Seng Index.

It trades at 21 times estimated earnings, compared with around 14 times for Vodafone and NTT DoCoMo's 15.5, according to Reuters Estimates.

($1=7.584 Yuan)