China Mobile Limited
About China Mobile

Dear Shareholders,

In the first six months of 2014, having aligned with the development trends of mobile Internet and proactively responded to challenges arising from various factors including the increasingly saturated traditional telecommunications market, fierce competition within the industry, the aggravated substitution effect of Over the Top (OTT) products and the adjustments of the relevant government policies, the Group accelerated strategic transformation, intensified reform and innovation, firmly seized the opportunities for 4G development, endeavored to enhance its capabilities in network, marketing, management and human resources, vigorously promoted its operations of existing customers and business, data traffic and corporate customer services, and enhanced business innovation in digital services. As a result, the Company achieved favorable results in its development. In the first six months of 2014, the initial 4G development has been remarkable with 4G network capabilities being rapidly built up, leading to rapid growth momentum of 4G customer scale. During the same period, the Company also maintained a solid customer base and continued the rapid development of data traffic services, and achieved stable operational results.


Financial Results

In the first half of 2014, the Group's operating revenue maintained stable growth and reached RMB324.7 billion, up 7.1% over the same period last year, of which, revenue from telecommunications services was RMB297.9 billion, up 4.7% over the same period last year. Data business had a positive growth momentum with revenue of RMB121.9 billion, up 27.8% over the same period last year, and as a percentage of revenue from telecommunications services increased to 40.9%, of which, revenue from wireless data traffic reached RMB72.0 billion, up 51.8% over the same period last year. The revenue structure was further optimized. The Group reasonably increased its investment in the relevant resources in order to provide better support for the explosive growth in data traffic, in particular to accelerate expansion of 4G business and build up core competitiveness. Meanwhile, policy factors including the transformation from business tax to value-added tax and the adjustments of network interconnection settlement standards resulted in a decrease of profitability, however, the Group continued to lead the industry in terms of profitability. Profit attributable to equity shareholders decreased by 8.5% over the same period last year to RMB57.7 billion, and the margin of profit attributable to equity shareholders was 17.8%. EBITDA decreased by 4.4% over the same period last year to RMB118.3 billion, and EBITDA margin1 was 36.4%. EBITDA was 39.7% of revenue from telecommunications services.

Business Development

Amidst the complex competitive landscape, by adhering to its established strategies, the Group continuously promoted development of the three major drivers of its operations, namely, existing customers and business, data traffic and corporate customer services, as well as development of new businesses, and achieved remarkable results in its transformation development.

The Group maintained a solid customer base. As of the end of June 2014, the Group had over 790 million customers, representing a growth of 23.41 million customers compared with the end of 2013, with a stable retention of middle-to-high-end customers. The Group's corporate customer business maintained favorable growth momentum with 3.27 million corporate customers in total, while revenue from communication and informationalization services showed rapid growth.

Our 4G development demonstrated a favorable growth momentum. The Group was the first to launch commercial 4G services in Mainland China after receiving its license in December last year. As of the end of June 2014, our 4G customers had reached 13.94 million. The Group accelerated network construction, built up network capabilities, fully respected customers' preferences for services and proactively promoted the development of 4G customers through various initiatives including optimizing data traffic tariffs, providing convenient and prompt upgrade services and increasingly diversifying 4G terminals. As a result, our 4G customer base showed a favorable momentum of accelerated growth.

The Group achieved notable progress in data traffic operations. Aligned with the booming increase in data traffic demand, we launched various tariff plans with an emphasis on data traffic and has achieved strong business growth. Mobile data traffic increased by 91.4% compared with the same period last year. Revenue from wireless data traffic increased by 51.8% compared with the same period last year, contributing to 24.2% of telecommunications services revenue. Revenue derived from data traffic became a major driver of revenue growth.

We have also benefited from significant increase in terminal sales volume. In the first half of 2014, a total of 120 million TD handsets (including TD-SCDMA and TD-LTE standards) were sold through all distribution channels, and such increase accelerated the migration of customers from 2G network to 3G and 4G networks. Terminal sales provided strong support for existing customers and business and data traffic operations, and brought vibrancy to the 4G terminal industry.

By adhering to its mantra of "Customers are our priority, quality service is our principle", the Group continued to enhance services and improve customer satisfaction. The Group continued to promote customer services mechanism featuring front-end localization and back-end centralization, and focused on protecting customer rights and resolving issues of uninformed service subscriptions to promote transparency in customer consumption. We handled customer complaints in a serious manner focusing on online complaints and undertook effective blocking and control over spam messages. In the first six months of 2014, the Group maintained the lowest rate of escalated complaints within the industry in Mainland China.

Strategic Transformation

Aligned with the development trends of mobile Internet, the Group embraced the migration of the core telecommunications revenue driver from voice to data traffic and then to digital services, accelerated capabilities distribution and strategic transformation and made efforts to promote its development transition from voice to data traffic operation, from mobile communications services to innovative full-services and from communications services to digital services.

The Group deepened the development of Four-Network Coordination, continued to strengthen network capability in general and accelerated the transition from voice-centric to data-centric operations. We endeavored to promote 4G network construction and optimization aiming to construct a premier quality network. Currently, we have put in use 410,000 base stations covering more than 300 cities, and built up the world's largest 4G network. We will further accelerate network construction to achieve continuous coverage in almost all cities and county-level cities as well as effective network coverage in key villages and towns in Mainland China by the end of this year, and endeavour to carry out trial commercialization of VoLTE, consolidating our first-mover advantage in 4G services. We capitalized on our existing resources and capacity of our 3G network to enhance customer experience and strengthen customer relationships. We continued our efforts in 2G network maintenance preserving our advantages in voice quality and network efficiencies. We also maximised the network efficiency and traffic diversion of WLAN in order to meet traffic demand.

Through deepening the development of Four-Network Coordination, the Group further consolidated its advantage in wireless network, maintained its leading position in voice quality and continuously optimized the network traffic structure. Currently, 3G/4G data traffic has reached 44% of the total mobile data traffic.

The Group strengthened the accumulation of infrastructure resources and continuously improved fundamental network capabilities. Our accessibility of corporate customer IP-VPN lines and introduction of Internet content were significantly enhanced. By the end of June 2014, the Internet traffic on-net rate reached 91%, and the mobile phone on-net hits rate reached 75%. Adhering to our established principles of high standards, product differentiation and focus on investment returns, we provided the foundation and support for the transition from mobile services to innovative full-services by improving our transmission network capabilities, accelerating public Internet construction, and effectively developing broadband access that leverages our 4G advantages.

Persisting with the policy of "smart pipes, open platform, featured services, friendly interface", and consolidating the advantages of a traditional operator and the features of mobile Internet, the Group proactively prepared for the establishment of a mobile Internet company to develop mobile Internet services, leveraging its advantages in resources, scale and capabilities. In the first six months of 2014, we consolidated five integrated product platforms targeting different customers, namely, "and-Communication", "and-Life", "and-Entertainment", "and-Family", and "and-Business", and endeavored to establish an integrated communications system featuring New Calls, New Messages and New Contacts, to promote the transformation from developing communications business to digital services.

Reform and Innovation

We strengthened our efforts in reform and promoted entrepreneurship and innovation. Adhering to the principles of centralized management, operational specialization, market-oriented mechanisms, the building of a flat organization and the standardization of processes, we constructed new infrastructure and developed products and services for specialized operations in order to enable our organizational structure to support both the development of our existing business and the achievement of sustainable growth in future.

We achieved notable progress in specialized operations. With respect to terminals, we significantly reduced the costs in distribution channels, increasingly diversified terminal models and launched the M811 mobile phone under our own brand featuring five modes and ten frequencies at a price of RMB1,000, effectively setting a trend for the industry. With respect to corporate customer operations, we launched products under our own brand including pre-installed automobile modules, innovated cooperation modes and steadily improved our products capability and operational efficiency. With respect to international business, we fully implemented our "RMB1/2/3" international voice roaming plans, and expanded the coverage of our "RMB3/6/9" international data roaming scheme to 80 major countries and regions. In the meantime, we also made great efforts to develop our 4G international roaming services.

We effectively promoted centralized management and significantly improved centralized procurement. The centralized management of our sales outlets was extended to cover 244 cities. Our online mobile mall was fully supported throughout the whole network. In the meantime, our centralized infrastructure including data centers, call centers, research and development centers, China Mobile South Base and the five regional logistics centers were further utilized.

We accelerated our innovative development. We reformed our traditional geographically divided and voice-centric business model, accelerated our business transformation, development of digital service products, channel transformation and marketing innovation, and continued to improve and refine our management. We optimized resource allocation and utilization, intensified cost management and control to reduce costs and increase efficiency and achieved favorable results in innovative development.

Corporate Governance

Abiding by corporate governance principles of integrity, transparency, openness and efficiency, the Company strived to achieve best corporate governance practices by strictly following the requirements under the Listing Rules. In 2014, in response to internal and external operating environments as well as regulatory requirements, the Company focused on risk management and continued to improve the risk and internal control system, enhanced risk predictions and the effects of risk management and control, and promoted the integration of internal control and business processes. We continued to improve our legal risk management system and strengthened legal support for our innovative development and organizational reform. We further enhanced our system of internal audit and internal control by continuing to audit and monitor tenders, procurement and decision-making mechanisms in order to prevent and control the significant risks arising from business operations and development as well as non-compliant conduct in key operational areas. At the same time, the Group also paid great attention to development efficiency and benefits, and promoted the improvement of management system and the optimization of mechanisms and procedures in order to ensure the proper operation of our businesses.

Investment and Acquisition

On 9 June 2014, the Company agreed to, through its wholly-owned subsidiary, subscribe for shares in True Corporation Public Company Limited ("True Corporation") in Thailand through a private placement for a total consideration of approximately RMB5.5 billion. Upon completion of the transaction, the Company will indirectly hold 18% equity interest in True Corporation.

On 11 July 2014, the Company and two other communications operators jointly agreed to establish China Communications Facilities Services Corporation Limited ("CCFSCL"). The Company, through its wholly-owned subsidiary, subscribed for shares in CCFSCL, which represent 40.0% of its registered capital, for a total consideration of RMB4.0 billion. The establishment of CCFSCL will benefit the Company by reducing its overall investment scale and saving capital expenses.

Corporate Social Responsibility

The Group attaches great importance to corporate social responsibility and has actively contributed to the provision of emergency communication services, network and information safety, energy saving and emissions reduction, and social welfare support. In the first six months of 2014, we deepened our benchmarking management based on the Dow Jones Sustainability Indices, and further optimized environment management and improved our performance in supply chain responsibilities while maintaining favorable performance in electromagnetic radiation management and customer privacy protection. We further deepened the "Green Action Plan" focusing on energy conservation and emission reduction, and aimed to realize a reduction in overall energy consumption per unit of information flow by 13.5% in 2014. Through our China Mobile Charity Foundation, we carried out philanthropic activities such as poverty alleviation and education support. By the end of June 2014, we had cumulatively sponsored surgeries for 1,692 children in poverty with congenital heart disease and continued to sponsor the training of secondary and elementary school principals in central and western rural China. Jointly with the PRC Ministry of Education, we also organized presentations on multi-media teaching applications.

Awards and Recognition

Our efforts have been widely recognized and praised. In 2014, our ranking in Forbes Magazine's "Global 2000" List improved to 28th and once again, we were listed among the "FT Global 500", ranking 25th. The China Mobile brand was named one of the "BRANDZTM Top 100 Most Powerful Brands" by Millward Brown and Financial Times for the ninth consecutive year, ranking 15th globally. In the first half of 2014, Moody's and Standard & Poor's kept our corporate credit ratings equivalent to China's sovereign credit ratings, which are Aa3/ Outlook Stable and AA-/Outlook Stable, respectively.


In view of the Group's operating results in the first half of 2014, and taking into consideration its long-term sustainable development, the Board declared an interim dividend of HK$1.540 per share in accordance with the dividend payout ratio planned for the full financial year of 2014.

The Board believes that the Company's industry-leading profitability and healthy cash flow generating capability will be able to provide sufficient support to its future development, while providing shareholders with a favorable return.

Future Outlook

In 2014, the Chinese government has set the general direction for steady domestic economic growth and improvement, and encourages the development of strategic emerging industry sectors and information consumption, providing us with broad development prospects. The commercialization and rapid development of 4G has provided the Company with a rare opportunity to reshape its advantages. In the meantime, with the commencement of trial operations of hybrid LTE (TD/FDD) network, the communications operators have entered into a new phase of 4G competition, and market competition will become fiercer. The substitution effect on the traditional telecommunications business by OTT business will be aggravated, and the effects of adjustments in government policies on the Company will start to become evident. Accordingly, the Company will face relatively high pressure in its short-term growth.

Facing both opportunities and challenges, the Company will focus on the strategic vision of Mobile Changes Life. Amid an ever expanding digital services market, the Company will embrace the migration trend of core telecommunications revenue driver from voice to data traffic and then to digital services, proactively develop digital services based on the solid foundation of its core resources to become a trustworthy digital services expert. We will further accelerate our strategic transformation, deepen our Four-Network Coordination, promote full-services operation and foster mobile Internet development. We will strengthen our reform efforts, build up new infrastructure system, end-to-end product services system and multi products-oriented marketing services system. The Company will endeavor to accelerate 4G development, continue to optimize network construction, accelerate customer development and business innovation, and maintain and create new competitive advantages in the 4G era in order to promote the sustainable and steady development of the Company.

We will look for appropriate external investment opportunities in an active but cautious manner, and strive to broaden our presence in the market to support our transformation and development.

We will persevere as always and strive to create value for investors.

Xi Guohua
14 August 2014, Hong Kong


EBITDA margin = EBITDA/Operating revenue