Chinese telcos' Q3 earnings drop on weak demand

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Weak consumer spending and a tax hike continue to weigh heavily on Chinese telcos. China Mobile and China Telecom, the two biggest operators, posted Q3 numbers this week that were down in almost every segment.

China Mobile's Q3 earnings fell 12.5% to 27.5 billion Chinese yuan (US$4.1 billion), with revenue declining 3.4% to CNY242 billion ($36.2 billion).

China Telecom reported net income of CNY6.6 billion ($988 million), a 15.4% drop, while revenue contracted 2.9% to $121.9 billion ($18.3 billion).

The state-owned firms did not offer an explanation for the lower performance, which follows similarly tepid results in the first and second quarters. But they were hit by a value-added tax hike at the beginning of the year, while the Chinese economy still struggles to boost consumer confidence.

The growth in cloud, AI and enterprise services just has not been enough to overcome the flat consumer business. China Mobile said revenue from non-core services grew 9.9%, but its main business lines contracted 5.1% and EBITDA (earnings before interest, taxes, depreciation and amortization) slumped 6.9%.

Tower downturn

Its result for the nine months to September was also lackluster, with net income of CNY106.2 billion ($15.9 billion), down 7.9%, and 1.3% a decrease in revenue to CNY780.3 billion ($116.9 billion). China Mobile said it would continue its "transformation from a communications operator into a technology services enterprise."

Its mobile subscriber base now totals 1.01 billion, of which 702 million are 5G users.

Besides the two telcos, state-owned China Tower, with one of the industry's most bullet-proof revenue streams, is also experiencing a downturn.

It reported a 12% fall in EBITDA for the first three quarters to CNY44.8 billion ($6.7 billion). Revenue in the first three quarters declined 3.1%, mostly due to a drop in demand in its core telco unit, which accounts for four-fifths of the business.

Tower sales to telcos fell 8% to CNY52.1 billion yuan, while the tower tenancy rate declined from an average of 1.79 tenants per tower last December to 1.77. But its smaller segments all grew, with DAS revenue up 10%, smart tower 11% higher and energy sales up by 13%.

The three companies all traded lower in the Hong Kong exchange this week, with China Mobile down 5%, China Telecom declining 8.8% and China Tower off 5.5%.

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