China Telecom's growth disappoints

PUBLISHED : Wednesday, 23 March, 2011, 12:00am
UPDATED : Wednesday, 23 March, 2011, 12:00am

China Telecom, the mainland's largest fixed-line operator by subscriber numbers, yesterday reported slower than expected net profit growth for last year, at 9.3 per cent.

While the company added subscribers for mobile and broadband services, average revenue per user (arpu) - a barometer of long-term growth for telecoms firms - for mobile services fell 9 per cent, and more for its fixed-line business.

China Telecom, also the country's third-largest wireless network operator, said it would purchase code division multiple access (CDMA) networks next year from its state-owned parent company, China Telecommunications.

Chairman Wang Xiaochu said the company's free cash flow of 27 billion yuan (HK$32 billion) by the end of 2010 was more than enough, but China Telecom would consider issuing bonds to accumulate funds for the purchase.

Wang said the parent company bought the CDMA networks for about 110 billion yuan in 2008 from China Unicom. They are now valued at less than 100 billion yuan.

The company's ratio of total liabilities to capitalisation was 23.6 per cent, and Wang believed the figure would remain lower than 45 per cent after the purchase. 'For a telecommunications company, 45 per cent is still healthy,' Wang added.

Arpu fell to 54.20 yuan last year from 59.50 yuan in 2009. Wang said the figure would further decline this year due to an increase in the number of less wealthy rural users.

China Telecom has been trying to fuel growth by attracting users of 3G mobile services, which offer higher data speeds and arpu compared with 2G services.

In 2010, revenue from mobile voice services rose 44.3 per cent to 28.9 billion yuan from 20 billion yuan, thanks to a larger user base. China Telecom added 34.43 million new mobile users, with total users topping 90 million. Some 8.22 million of the new subscribers were 3G users, 24 per cent of total customers.

Wang said that in the first two months of this year, 3G subscribers had accounted for 48 per cent of new users. The company expected that would climb to 50 per cent this year.

However, revenue from wireline voice services fell 20.3 per cent to 62.5 billion yuan last year from 78.4 billion yuan a year earlier. Access lines in service decreased from 188.6 million to 175 million.

China Telecom would boost capital spending 16 per cent to 50 billion yuan this year from 43 billion yuan last year, Wang said.

China Telecom said net profit for the 12 months to December was 15.76 billion yuan, up from 14.42 billion yuan. Revenue rose 5 per cent to 220 billion yuan from 209 billion yuan.

Lisa Soh, an analyst at Macquarie Securities in Hong Kong, said in a report that operating fundamentals were weaker than expected. She rated the company as 'underperform' and set a 12-month share price target of HK$3.70.

China Telecom declared a final dividend of 8.5 HK cents a share, unchanged from a year earlier. The stock closed up 2.3 per cent at HK$4.49 while the Hang Seng Index inched 0.76 per cent higher.