China Mobile Ltd. (CHL), the world's biggest mobile operator by subscribers, reported Thursday a sharp slowdown in profit growth for the first half as competition intensified and it added low-income subscribers in rural areas.

Analysts said earnings growth momentum for China Mobile is slowing down due to the weakening economy and increasing competition from China Unicom Ltd. (CHU) and China Telecom Corp. (CHA). After the commercial launch of its third-generation mobile service in January, China Mobile has been striving to improve its network coverage and handset quality to add subscribers.

Chairman and Chief Executive Wang Jianzhou said the slowdown in its subscriber growth was due to higher mobile penetration in urban cities, but the company still sees room for growth in central and western China.

"New value-added services are our new growth drivers. We hope to maintain sustainable growth in business with continued addition in subscribers," Wang told reporters at a press conference.

China Mobile reported a net profit of CNY55.3 billion (US$8.09 billion) for the six months ended June 30, up 1.5% from CNY54.5 billion a year earlier. Revenue rose 8.9% to CNY212.91 billion from CNY195.46 billion.

The growth rate was sharply lower than the 45% it saw in the first half of 2008 and the net profit figure came in lower than the average forecast of CNY56.44 billion in a Dow Jones Newswires poll of 10 analysts.

Partly on concerns about slowing growth, China Mobile's shares ended down 0.2% at HK$82.85 Thursday, underperforming the benchmark Hang Seng Index which rose 1.9%.

Wang said he is confident its 3G subscriber base will increase to around 3 million by the end of the year from 1.09 million at the end of July.

The executive also said it will launch 3G handsets soon under the Lenovo, HTC Corp. (2498.TW) and Dell Inc. (DELL) brands using a mobile operating system which the company has been developing.

"We are hungry for all types of quality handsets," said Wang, who added that China Mobile remains interested in offering Apple Inc.'s (AAPL) iPhones in China and talks are continuing with the U.S. company.

The company added 35.87 million subscribers in the first-half of this year, bringing its total subscribers to 493.12 million at the end of June. But the first-half subscriber growth of 19% was sharply lower than 25% a year earlier.

CLSA analyst Elinor Leung said subscriber growth dropped because mobile penetration already exceeded 50% and competition intensified with China Telecom launching its code division multiple access mobile service.

She said the weak economy has also led to higher churn rates in coastal areas because migrant workers lost their jobs in the cities and returned to their hometown.

Chief Financial Officer Xue Taohai said the company expects its average revenue per user per month to continue to fall in the near term as it penetrates into rural markets which typically have lower tariffs.

China Mobile's ARPU slipped to CNY75 in the first half of this year from CNY84 a year earlier.

ARPU is a key industry gauge to determine the long-term growth rate of telecom operators.

Wang also said he hopes to conclude a deal to invest in Far EasTone Telecommunications Co. (4904.TW) "soon."

Wang said the company's internal approval procedure for its plan to buy a 12% stake in Far EasTone Telecommunications for NT$17.77 billion (US$536 million) has been completed.

China Mobile and Far EasTone are now actively preparing the application for approval from relevant regulatory authorities.

Wang said he will be traveling to Taiwan to meet with Taiwanese technology companies on Friday but said he had no plan to meet with Taiwan's government officials.

China Mobile recommended a first-half dividend of HK$1.346 a share, up from HK$1.339 a year earlier.

-By Lorraine Luk, Dow Jones Newswires; 852-2802-7002; lorraine.luk@dowjones.com