China Telecom profit falls, but shares rise on network deal
Fixed-line operator aims to further expand 3G mobile base through purchase of parent's wireless set-up despite a profit fall of 8.3pc
China Telecom, the world's largest fixed-line network operator, plans to step up the expansion of its 3G mobile user base after landing a deal to buy the wireless network of its parent company.
Chairman and chief executive Wang Xiaochu said the Hong Kong-listed carrier, which posted yesterday a drop in interim net profit, agreed to pay 84.6 billion yuan (about HK$103.7 billion) in cash to acquire the domestic mobile network it is now leasing from state-owned parent China Telecommunications Corp.
The acquisition is slated to close at the end of this year. It comprises a nationwide mobile infrastructure that supports the 2G cdmaOne and 3G CDMA2000 mobile standards.
"That is 19 per cent below our purchase price assumption of 104 billion yuan and 30 per cent lower than the asset's 120 billion yuan book value at the end of last year," said Lisa Soh, an analyst at Macquarie Capital Securities. Wang described the deal as "timely" and made "at a fair and reasonable price".
Operating the smallest of the mainland's three nationwide wireless networks, China Telecom has discussed plans to acquire its parent's mobile infrastructure since March last year. The deal would allow the carrier to boost operating efficiency and cut expenses by avoiding the escalating costs of leasing the network.
The price of China Telecom's shares rose 4.51 per cent to close at HK$4.17 each yesterday on news of the transaction.
That may have lessened the sting of a disappointing 8.3 per cent fall in first-half net profit to 8.8 billion yuan, down from a revised 9.6 billion yuan a year earlier, mainly due to intense market competition, higher operating expenditures and increased marketing costs.