China Mobile faces $2b bill over interconnect change: report

The MIIT is considering cutting the mobile interconnection fees for China's two smaller cellcos, China Telecom and China Unicom.

A ministry research report has recommended halving the fee Telecom and Unicom pay China Mobile because its dominance has “unbalanced” the market, ENN Weekly reports (in Chinese).

In return, the ban on China Mobile to entering fixed-line broadband should be lifted, the study suggests. China Mobile’s role in the market has been unclear since the prohibition formally ended in Dec. 2011.

Currently the three operators pay 6 fen (just under 1c) a minute to each other to deliver calls. MIIT recommends cutting that to 3 fen (still using calling party pays system).

ENN Weekly estimates that under the plan China Mobile’s mobile interconnection payments will increase by more than 12b yuan ($1.96b) a year.

The timing is interesting. Last financial year, China Mobile’s profit towered over its rivals, as it has every year for the past decade, posting 129b yuan in earnings, more than eight times the combined profit of the other two.  Yet it increased income by just 2.5% in the second quarter and is on track to post its first full-year decline in 14 years.

By contrast, thanks to the faster speed and quality of their networks, and the availability of the iPhone, China Telecom and China Unicom are in the mobile data sweet spot, knocking up profit gains of 21% and 41% respectively.

Next year the market will take a fresh turn when 4G comes to town. China Mobile has been the most aggressive in its rollout.

China Mobile’s stock price fell $1.46 to $55.14 in the wake of this news breaking last Thursday.

The ministry will hold hearing on the issue before it makes a decision.