iPhone subsidies drag down profits at China Mobile

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After years of negotiations, China Mobile finally began selling Apple's iPhone to its 776 million subscribers in January. Now, the world's largest mobile carrier probably wishes it hadn't.

In fact, the cost of subsidizing the pricey iPhone actually dragged down China Mobile's profits in the first quarter, according to a Bloomberg report.

China Mobile posted its third straight drop in quarterly profit this week as the cost of subsidizing iPhones and building out 4G networks ate into profits.

Net income fell 9.4 percent year-over-year to about 25.24 billion yuan ($4 billion), well below the 27 billion yuan analysts had expected, Bloomberg reports.

At the same time, sales in the quarter rose 7.8 percent to 154.8 billion yuan, up from 143.6 billion yuan in the year-ago quarter, much higher than the 142 billion yuan analysts had expected.

Despite the surge in sales, China Mobile's shares dropped 2.6 percent, the most since mid-March, to close at HK$70 per share on Tuesday trading.

"These results were even worse than expected. China Mobile is going to suffer from even heavier pressure in the coming quarters as they raise handset subsidies, so their profit margin is going to further decline," Ricky Lai, a Hong Kong-based analyst at Guotai Junan Securities, tells Bloomberg.

The carrier expects its phone subsidy costs will increase 31 percent this year, the Wall Street Journal reports.

Although China Mobile doesn't provide data on iPhone sales, CNN estimated, based on consultations with analyst, that China Mobile had sold 18 million iPhones as of mid-March.

For more:
- check out the Bloomberg report
- read the WSJ article
- see the CNN estimate

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