China Telecom 1H profits down amid higher competition

29 Aug 2007

China’s largest fixed line operator by subscribers China Telecom today reported a 4.8% fall in net income in the first half of 2007, as increased competition from the likes of domestic mobile rivals China Mobile and China Unicom slowed overall subscriber growth. The fiscal first-half performance was also adversely impacted by slower sales of broadband services which failed to fully offset a decline in voice calls. China Telecom said net income dipped to RMB13.48 billion (USD1.8 billion), from a restated RMB14.16 billion for the corresponding period of 2006. Revenues including connection fees for fixed line services climbed 1.5% from a restated RMB87.3 billion to RMB88.6 billion. The company reported an EBITDA margin of 51.2%. Excluding amortisation and upfront connection fees, net profit rose 1.3% to RMB11.81 billion, but below market expectations of growth in profit from continuing operations of 2%-3%.

China Telecom said sales of fixed voice services fell 6.9% to RMB57 billion, impacted by Chinese mobile operators introducing promotional packages offering free incoming calls, which cut into the telco’s traditional user base. Ten times as many Chinese signed up for wireless services than for fixed lines during the first half of 2007, lured by the lower rates being offered by China Mobile and China Unicom. Fixed line voice call ARPU slumped by 10.7% to RMB42.5, although the company reported that revenue from non-voice ARPU covered the loss, yielding an overall ARPU of RMB66. To bolster its subscriber base in the short term, China Telecom has applied for a licence to offer 3G wireless services, and is also increasing its focus on internet and data. ‘We further expanded our internet access, value added and integrated information services, so that our non-voice businesses emerged as the new revenue drivers,’ chairman Wang Xiaochu said in a statement. Turnover from internet services climbed 31% year-on-year from RMB11.20 billion to RMB14.64 billion thanks to sustained demand for broadband services. CAPEX was RMB20.44 billion, down 1.6% y-o-y.

The telco has no idea when the government will issue 3G licences but Wang says it has invested RMB600 million to date to develop its home-grown 3G mobile standard based on Time Division-Synchronous Code Division Multiple Access (TD-SCDMA) technology. Further testing however, is being hampered by the lack of availability of handsets.

China, China Mobile, China Telecom Group, China Unicom