China Mobile made its mark bringing wireless phone services to China's big cities and urbanized seacoast.

Now, it's harvesting cell phone users in China's hinterland.

In the first half of 2006, China Mobile (NYSE:CHL - News) added nearly 26 million customers, more than half from rural areas.

In China's big cities, most consumers who can afford cell phones have them. Subscriber growth there in coming years will be limited, analysts say. Many of China Mobile's new customers will come from rural markets.

"It's definitely a key factor in China Mobile's growth," said Ted Dean, managing director of consulting firm BDA China. "They've done a lot of work building up marketing and distribution in rural areas. They advertise on village TV stations."

China Mobile is on track to have 300 million subscribers by year's end, up 22% from the 246.6 million it had as of Jan. 1. That's a far faster growth rate than the overall industry. U.S. leader Cingular had 12% subscriber growth as of Sept. 30 vs. a year earlier. China Mobile has about two-thirds of the country's cell phone users.

China's rural market is much different from its Westernized big cities. Families in China's farming villages might share one phone. A farmer might rent his phone to neighbors to check crop prices.

Anything that boosts cell phone usage is a plus for China Mobile, analysts say.

Rural customers on average spend less than cell phone users in big cities, but "China Mobile has proven it can profitably serve rural subscribers," Dean said.

China Mobile's net profit rose 25% in the first nine months of 2006 to $5.8 billion.

Shares in China Mobile have soared on Hong Kong's stock market. NYSE-listed American Depositary Receipts trade near 44 and have jumped more than 80% in 2006.

Profit, meanwhile, has been falling at China Unicom (NYSE:CHU - News), the nation's No. 2 wireless firm.

"China Mobile has been adding new customers at a faster rate than Unicom due to its wider choice of (phones) and better network coverage," said Sandy Shen, an analyst in the Shanghai office of U.S.-based research firm Gartner.

Merrill Lynch analyst Wendy Liu says China Mobile has been out-gaining Unicom by a wide margin in rural areas.

South Korea's SK Telecom (NYSE:SKM - News), often considered one of the world's most innovative wireless firms, acquired a stake in Unicom in June. That relationship could help Unicom develop better products, analysts say.

China Mobile has two main growth engines, analysts say. It's adding more rural subscribers and it's getting more revenue from wireless data services.

China Mobile garners almost 20% of total revenue from text messages, ring tone downloads and other data products.

In rural areas, some China Mobile farming customers use cell phones to check weather forecasts, a data service, says Lehman Bros. analyst Paul Wuh.

China's government is expected to issue airwave licenses for next-generation 3G services in early 2007. China Mobile could benefit by selling pricier data services such as music downloads and even mobile TV, analysts say.

On the other hand, new players could enter China's wireless market by acquiring 3G licenses, analysts say. Merrill Lynch, though, expects the government to issue only three national 3G licenses, limiting competition.

And China Mobile has eyed expanding into other markets. Its $4billion deal to purchase Millicom International, which has wireless customers in 16 countries, fell through in July.

China Mobile's chief executive has said the company is still looking for acquisitions internationally, mainly in Asia or other emerging markets.

China Mobile Communications, the state-owned parent of China Mobile, has the financial tools to make such acquisitions, says Jane Wang, an analyst at research firm IDC China.

Copyright 2006 Investor's Business Daily, Inc.