China Telecom

Costly bite of the Apple for China Telecom

PUBLISHED : Wednesday, 21 March, 2012, 12:00am
UPDATED : Wednesday, 21 March, 2012, 12:00am


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China Telecom, the nation's largest fixed-line network operator and third-largest wireless carrier, said Apple's iPhone will be good for its long-term development but might bring short-term profit pressure.

Apple, the world's most valuable company, had previously had an exclusive distribution deal with China Unicom, one of the mainland's three major state-owned telecom carriers, but China Telecom entered the fray last March by offering the iPhone4S.

'We hope the iPhone's launch will increase the number of high-end users,' said chairman and chief executive Wang Xiaochu.

Independent analyst Xiang Ligang said co-operation with Apple will not initially offer China Telecom short-term profits.

'The carrier spends a lot of money on mobile phone subsidies, and the result is, at the moment, the more iPhones they sell, the more money they lose,' Xiang said.

China Telecom spent 15.6 billion yuan (HK$19.13 billion) in 2011 on handset subsidies, up 29.1 per cent from 2010, and sees no let-up for the moment. 'The amount of money we'll spend on mobile phone subsidies this year will not be less than last year,' chief financial officer Wu Andi said. But Wu said mobile handset subsidies as a percentage of mobile service revenue will continue to fall, 'if subsidies on iPhones aren't included'. The figure has already declined to 22.9 per cent in 2011 from 33.6 per cent in 2009, she added.

User numbers for 3G - third-generation services - at China Telecom reached 36.29 million as of December, up from 12.29 million a year earlier. New mobile subscribers in 2011 stood at 35.95 million, bringing the total to 126 million, and China Telecom expected the same number of new subscribers in 2012.

It said it had added 4.86 million 3G subscribers in the first two months of this year, bringing the total to 41.15 million. Its total subscriber base was 132.3 million by the end of February.

Monthly average revenue per user (ARPU) was 52.4 yuan last year. 'We expect ARPU to increase in 2012,' Wang told a news conference without elaborating. 'At present, 3G service is entering into a phase of accelerated growth, wireline broadband service is still in a period of high growth,' he said in a filing yesterday.

The company has set 2012 capital expenditure at about 54 billion yuan, up 9 per cent from 49.6 billion in 2011, and 70 per cent of the money is earmarked for upgrading broadband networks. Xiang said this was the right strategy to lure users. 'This is more effective than the iPhone because it improves users' experience.'

Wang repeated that the company wanted to buy the mobile network from its parent firm, China Telecommunications Corporation, this year. 'The acquisition price is subject to the negotiation with the parent company,' Wang said. He said last year China Telecom spent 19 billion yuan on leasing the CDMA-based mobile network from its parent, while network depreciation at the parent firm was only 12.6 billion yuan.

The company has announced a final dividend of 8.5 Hong Kong cents per share, as it wants to put money aside for its planned network acquisition. China Telecom said 2011 profit rose 10.5 per cent to 16.4 billion yuan, as growing use of mobile phones offset a decline in its traditional fixed-line business. Revenue rose 11.7 per cent to 245 billion yuan.


China is the world's biggest mobile phone market, with almost this many subscribers