By PAUL MOZUR And JURO OSAWA
SHANGHAIâ€"The chairman of China Mobile Ltd. said data traffic on the company's mobile network will surge more than 150% this year, and the company expects the sharp rise to continue in coming years.
While growing data traffic helps to generate revenue, it also creates a challenge as the carrier must ramp up investment on its network to accommodate it, said Xi Guohua in a speech Wednesday at the Mobile Asia Expo, a mobile-industry trade show.
The rise in data traffic often comes at the expense of traditionally more profitable services like voice and text messages as users increasingly turn to applications to communicate over their mobile devices.
Tencent Holdings Ltd.'s Weixin service, for example, allows users to chat and leave voice messages for each other without charge. Since its launch last year, that service has generated about 100 million users, according to the company.
The trend of data traffic cannibalizing conventional communication methods, in combination with increasing saturation of China's mobile market, has led to a dramatic slowdown for China Mobile's earnings momentum in recent years.
China Mobile also faces tough competition from rivals China Unicom (Hong Kong) Ltd. and China Telecom Corp. in attracting users of its third-generation services that offer faster data speeds and more revenue per user than more widely used second-generation services.
China Mobile also has the disadvantage of using an internationally unpopular third-generation standard, which was locally developed and favored by Chinese authorities. That means China Mobile is unable to offer the same variety of smartphones that its rivals can. For example, both China Telecom and China Unicom offer the iPhone, while China Mobile doesn't.
As a result, China Mobile has pushed for a quicker transfer to a fourth-generation standard, known as TD-LTE, which would help it better handle rising data traffic and attract more of China's high-end customers. It is testing this in a number of Chinese cities including Beijing, Shanghai, Hangzhou and Guangzhou.
Mr. Xi said the company's TD-LTE testing has proceeded smoothly and is attracting investment from local governments, as well as the central government. He added that the company would "very likely" add to the 20,000 TD-LTE base stations it has already built this year.
But he said the difficulty with rolling out TD-LTE has also come in the limited number of handsets currently available on the new standard.
"Now the device front is the bottle neck," he said.
But Mr. Xi added that the lack of devices was only a short-term problem, as the standard is being increasingly used across the globe.
"Device manufacturers look at the market demand to decide how they allocate resources...I believe we have a huge market in the future, so we will see more and more devices that use our standard; this is not a big problem for us at all. I think TD-LTE has a promising future," he said.
China Mobile has not yet announced when it will commercially launch its fourth-generation network, but analysts expect this in the next two years.
Mr. Xi also said providing other services offered business opportunities to the company. For example, he said that in China in the next two years, 2.5 billion industrial products like cars, toys and entertainment devices will be released that require mobile communications. He also said the company is talking with banks in China to provide financial services to customers.
Write to Paul Mozur at paul.mozur@dowjones.com and Juro Osawa at juro.osawa@dowjones.com
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