China Telecom

China Telecom's net profit falls 9.5pc despite 15.5pc rise in revenue

Increased sales to mobile users fail to boost bottom line as mainland operator sees iPhone marketing costs rise amid intense competition

PUBLISHED : Wednesday, 20 March, 2013, 2:23pm
UPDATED : Thursday, 21 March, 2013, 5:14am

China Telecom, the world's biggest fixed-line network operator and the nation's third-largest mobile-phone carrier, reported a 9.5 per cent decline in net profit last year due to increased marketing costs to promote the iPhone.

Although revenue rose 15.5 per cent to 283.1 billion yuan (HK$353.6 billion), net profit shrank to 14.9 billion yuan from 16.5 billion yuan in 2011.

The wireline business still contributed the lion's share of 165.2 billion yuan in revenue, but the growth was only 1.8 per cent. Revenue from the mobile segment jumped 42.5 per cent to 117.8 billion yuan.

Operating expenses grew 18.5 per cent during the year to 261.9 billion yuan to increase marketing initiatives during its launch of the iPhone.

China Telecom launched Apple's wildly popular gadget in March last year during intensified competition with larger competitor China Mobile and China Unicom to attract high-end mobile service users.

China Telecom said the device would enhance long-term growth "despite the short-term pressure on profitability".

The company had 165.3 million subscribers at the end last month, of which 74.9 million were fast-speed 3G network users. It gained a net 2.8 million 3G users last month, less than market expectations.

"The start of a new year is usually a weak season, and February is a short month," chairman Wang Xiaochu said.

Wang said the firm aimed at adding more than 30 million mobile subscribers this year.

The company's percentage of 3G users reached 45 per cent last month, much higher than the industry average of 20 per cent.

Expansion of 3G users helped average revenue per user (arpu) rebound to 53.90 yuan last year from 52.40 yuan in 2011. Arpu has been falling over the past couple of years, as new users are mostly in rural areas with weaker consumption power. Wang expected arpu to stay stable this year.

Lisa Soh, an analyst at Macquarie Capital Securities, wrote in a report that "arpu of 53.90 yuan was stronger than we expected on both the mobile voice and data side".

China Telecom marked 75 billion yuan for capital expenditure this year, a 3.3 per cent increase from last year.

Wang said subsidies on handsets would continue to increase in terms of the absolute amount, but the ratio between that and mobile business revenue will decrease.

A research note by Jefferies last week said "as China Telecom continues to focus on 3G expansion, we expect selling expenses, including handset subsidies, to remain at a higher level".

Wang said the firm had no interest in joining China Mobile in bidding for mobile spectrum in Hong Kong and compete in the market. "There are already five telecoms operators here. Enough is enough."

Shares of China Telecom yesterday rose 0.77 per cent to HK$3.93 in a market that closed 0.97 per cent stronger.