China Telecom Corp profits rise thanks to a Little Smart thinking

10 Sep 2003

China Telecom Corp reported a strong performance for the first half of 2003, as growth at its internet and cordless phone divisions offset declines for its long distance telephony services. Net profit at China’s biggest phoner carrier rose 9% year-on-year to CNY9.26 billion (USD1.12 billion), but with subscriber growth failing to meet analysts expectations its share price tumbled as much as 7.78% in trading yesterday. Turnover was up CNY2.6 billion to CNY39.5 billion.

Price cuts helped boost the take-up of telephony services and the telco added 5.3 million new customers to its core fixed line business in the six months to 30 June, taking its total subscriber base to 62.2 million. However, despite subscribers rising, fixed line usage fell and the sector’s contribution to China Telecom’s revenues dropped to 21.9%. It was the performance of Little Smart, the telco’s limited-range wireless service, that drew most of the attention. It is widely regarded as China Telecom’s likely earnings driver for 2003 as it entices low-end customers away from traditional mobile operators with the promise of wireless calls as much as 75% cheaper than China Mobile and China Unicom. The cellcos have complained that Little Smart enjoys an unfair advantage in being able to offer mobile services at fixed line rates, but the government has not stopped China Telecom expanding the reach of the service. At the end of June Little Smart had 5.4 million users, up 69% in six months following launches in Guangdong and Jiangsu provinces, and currently represents around 40% of China Telecom’s total net subscriber additions. Internet service revenues now account for 6.8% of total revenues (up from 4.5%) as the company’s broadband service continues to report robust growth, with subscribers rising to 2.56 million in 1H2003, from 2.28 million at the start of the year.

China Telecom was spun off from China Telecommunications Group in September 2002, taking over the incumbent’s assets in Shanghai, Jiangsu, Zheijiang and Guangdong. It is a majority-owned subsidiary of the PTO, operating through four regional voice and data subsidiaries: Jiangsu Telecom, Shanghai Telecom, Zheijiang Telecom and Guangdong Telecom. In November 2002 it experienced a disappointing IPO, through which a 10% stake was sold off, and a lukewarm reception to its trading debut in Hong Kong.

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