China Mobile – the world’s largest operator – saw its net profit last year fall sharply, with higher capex for its 4G buildout biting into margins, and service revenue slipping slightly as strong gains in data revenue couldn’t offset a fall in voice/SMS.

“We are facing severe challenges from intensified competition from two aspects,” stated chairman Xi Guohua. He highlighted competition from so-called OTT and Internet players, while also stressing the rivalry it faces from operators China Telecom and China Unicom. And the chairman noted that government regulatory policies are also impacting the company’s development.

The country’s leading mobile player posted a 10.2 per cent drop in its net profit for 2014 to CNY109 billion ($17.74 billion) and a 2.1 per cent decline in its EBITDA to CNY235.3 billion.

Its operating revenue edged up 1.8 per cent to CNY641.4 billion, but service turnover slid 1.5 per cent to CNY581.8 billion. Voice and SMS revenue continued its decline, falling 13.4 per cent to CNY343.7 billion.

Voice now accounts for 53 per cent of total revenue, down from 60 per cent in 2013, while messaging (SMS/MMS) – which fell 15.8 per cent – accounts for just 6 per cent or CNY34.78 billion.

On the positive side, mobile data revenue jumped 43 per cent to CNY150.5 billion, representing 26 per cent of service revenue. Its customer base rose by 39.43 million, or 5 per cent, to 806.6 million, with 4G connections increasing to 90 million.

Handset sales increased by 51.5 per cent to CNY59.6 billion, or more than 100 million units, boosted in part by the government’s efforts to curb subsidies. It spent 28.5 per cent less on subsidies last year.

Mobile data traffic rose 115 per cent compared to the previous year. The company said 4G ARPU was 1.7 times higher than blended ARPU.

The world’s largest operator claimed it made the most of its “first-mover advantage” in the country’s deployment of 4G services, rolling out 720,000 LTE base stations last year. Its capex for this year is forecast to drop 6.5 per cent to CNY199.7 billion, with spending on mobile networks falling to 39 per cent of the total from 48 per cent last year, when its 4G capex budget hit CNY80.6 billion. That spending will decline to CNY72.2 billion in 2015.

The operator said its energy consumption “per unit of information flow” decreased 13.7 per cent.

Its EBITDA margin was down 1.5 points to 36.7 per cent. It proposed paying a H2 dividend of HKD1.38 per share, for a total dividend for 2014 amounting to HKD2.92.