China Telecom is betting on increased marketing initiatives and sales of Apple's iPhone to help expand its 3G mobile operations despite weak first-quarter net profit.
In a filing with the Hong Kong stock exchange yesterday, chairman and chief executive Wang Xiaochu said the company's 3G service 'is entering into a phase of accelerated growth'.
Telecom, the country's biggest fixed-line network operator and third-largest wireless carrier, reported a 6.5 per cent drop in first-quarter net profit to 4.27 billion yuan (HK$5.8 billion), from a restated 4.57 billion yuan a year earlier, because of higher handset subsidies, marketing and other support expenses.
It was the only one among the mainland's three major telecommunications network operators to post a decline in net profit for the three months to March 31.
Operating costs last quarter swelled 19 per cent to 61.78 billion yuan from a restated 51.78 billion yuan the previous year. That included selling, general and administrative costs of 14.18 billion yuan.
Revenue was up 15.7 per cent to 67.93 billion yuan from a restated 58.72 billion yuan a year ago.
'China Telecom appears to be making a large loss on handset sales,' Macquarie Securities analyst Lisa Soh said in a report. She said its resolve to boost iPhone 4S sales, while also supporting mid-priced to low-end handsets, pressured profits.
The carrier started offering the iPhone 4S on March 9 to subscribers on its 3G network, which is based on the CDMA2000 1xEV-DO standard.
Following that launch, chief financial officer Wu Andi said: 'The amount of money we'll spend on mobile phone subsidies this year will not be less than last year.'
Telecom spent 15.6 billion yuan on handset subsidies last year, up 29 per cent from 2010.
Apple's other carrier partner for the iPhone is China Unicom, the mainland's second-largest wireless provider, which runs a 3G network based on the standard called WCDMA.
Market leader China Mobile, whose 3G network uses the government-backed standard called TD-SCDMA, is still in talks with Apple about supporting the iPhone.
Telecom's aggressive marketing added 7.26 million 3G subscribers last quarter to increase its 3G user base to 43.55 million. The carrier has 135.83 million mobile subscribers, mostly on its 2G CDMA network.
Shares of Telecom rose 2 HK cents to HK$4.13 yesterday.
The number of voice minutes China Telecom mobile subscribers used in the first quarter•13.74 million public phones in service