By Lee Chyen Yee
HONG KONG (Reuters) - China Mobile posted a 3.5 percent rise in quarterly profit and marked its entry into 4G wireless technology on Friday, launching services in Hong Kong as it aims to boost data revenue and eventually clinch a deal to offer Apple's iPhone.
The world's biggest carrier by subscribers is also testing the high-speed 4G technology at base stations in mainland China, where it hopes to start services commercially in as early as two years and attract smartphone users who stream videos and play games like "Angry Birds" and "Fruit Ninja".
China Mobile is the only Chinese carrier that does not have a contract with Apple to sell iPhones, and development of its 4G technology could help pave the way for it to sell the U.S. smartphone in China, which has the world's largest mobile subscriber base with over a billion users.
Even though the Beijing-based carrier has more than 660 million users - twice the U.S. population - many are low-end 2G users. China Mobile offers 3G services, but these use an inferior homegrown technology called TD-SCDMA that Apple, for instance, does not support.
Against this backdrop, China Mobile is upgrading its network as it looks to sell more smartphones to boost data revenue, which is growing more than voice revenue. Still, a shift to high-end 4G services could take time in China, where many users just make phone calls and send text messages.
"China's income level is still low. For smartphone (usage) to pick up, China's operators will need low-cost smartphones," said Kelvin Ho, an analyst with Yuanta Securities.
"They can't totally rely on iPhones because at the end of the day, the high-end market in China may not be very large. You will have to serve the large mass market."
China Mobile, which competes with China Unicom and China Telecom Corp Ltd, said net profit rose to 27.8 billion yuan ($4.4 billion) in January-March from 26.9 billion yuan a year earlier, as data revenue helped offset hefty subsidies paid to phone makers such as Samsung Electronics.
The result was in line with an average estimate of 28.2 billion yuan ($4.5 billion) from three analysts.
'ANYTIME AND ANYWHERE'
On Friday, China Mobile's Hong Kong unit launched its 4G services in the Chinese territory, allowing cross-border data sharing plans when roaming in China.
Subscribers who sign up for new 3G and 4G data plans with China Mobile in Hong Kong as of Friday will be able to travel to China to use mobile data services for a fixed monthly fee, reducing data roaming expenses, the carrier said.
"Broadband demand for accessing the Internet 'anytime and anywhere' is facing tremendous growth, corresponding with the global explosion of data," Tiger Lin, chairman of China Mobile Hong Kong, said in a statement.
"In view of this trend, 3G networks have already lagged behind the data demands of this generation."
Hong Kong has already launched next-generation 4G services with CSL Ltd, a unit of Australia's Telstra Corp, the first to do so in November 2010. China has yet to do so commercially but some cities are undergoing trial runs.
Hong Kong uses the more widely adopted FDD-LTE 4G technology, while China Mobile adopts TD-LTE, which evolves from its proprietary TD-SCDMA technology.
Fourth-generation (4G) technology has been gaining traction in some markets globally, though wide adoption is currently limited by the availability of 4G handsets.
Analysts expect more than 100 LTE (long term evolution) commercial networks will be operational by the year-end globally.
In Asia, since the first commercial LTE network went live in Hong Kong in November 2010, there are only a handful of operators in other countries such as Japan and Singapore that have launched commercial 4G networks.
China Mobile has conducted a first-phase trial of TD-LTE with 850 base stations in six cities, and expects to complete the next phase of tests by June next year, executives said.
"Competition will increase in 2012 as players get cheaper smartphones and the iPhone," Elinor Sheung, an analyst with CLSA, said in a report ahead of the earnings release.
"The smaller telcos, China Unicom and China Telecom, will want to maximize subscribers ahead of the 4G rollout as China Mobile becomes a stronger threat."
A commercial launch in China would hinge on when the government issues 4G licenses, which could be two to three years away.
Shares of China Mobile, which has a market capitalization of $220 billion, ended up 1.5 percent prior to the earnings results on Friday, outperforming the main Hang Seng Index's, which was little changed.
(Editing by Chris Gallagher)