The question hanging over sector growth is when the central government will award the third-generation (3G) licences that China Telecom and fixed-line rival China Netcom need to further their long-term ambitions to converge fixed-line and mobile communications, following the example of many parts of the world.

But until a clearer indication arises, China Telecom is focusing on shifting from being a traditional fixed-line carrier to a comprehensive information services provider for its more than 200 million domestic subscribers.

Under the stewardship of Wang Xiaochu, the former chief of China Mobile, the operator has developed Biz Navigator, a product that targets small and medium-sized enterprises, helping them utilise information technology and broadband to build a management platform.

Still in its infancy, the programme - a collaboration with the likes of Cisco Systems, Microsoft Corp, Lenovo Group and Hewlett-Packard - was expected to deliver substantial earnings next year, senior company officials said.

Small and medium-sized enterprises contribute more than half of corporate earnings in China, but only a fraction of them are using broadband to run their operations.

Like Netcom, China Telecom hopes to expand its internet protocol television business on its broadband networks, a system that began trials in Shanghai and Guangzhou last year. The service has lured 40,000 subscribers.

But with a dearth of good programming due to stringent controls by the State Administration of Radio, Film and Television and limited supply from a single Beijing-approved content provider, the short-term prospects appear bleak.

At the end of June, China Telecom had 17.3 million broadband customers. However, the operator, which provides networks in 20 provinces and regions including Shanghai, Sichuan and Guangdong, saw first-half profit growth slow to 7.8 per cent to reach 11.29 billion yuan from the previous 9.2 per cent.

Its new predicament is due to a mix of external and internal factors. The government's deregulation of its monopoly may have reallocated assets and created more state-owned players, but changing deep-rooted mindsets of cadres is another matter.

This does not help when the industry is changing at a blinding speed.

'[China Telecom Corp officials] may know telecommunications very well but aren't in tune with information technology, the internet, etc,' a company source said.

The company is ploughing huge resources into training, but turning old concepts around is a painful process that takes a long time.

On a broader scale, industry watchers are expecting another round of asset reshuffling to rationalise the sector and minimise infrastructure costs to build the 3G networks.

Analysts said deregulation efforts in the past failed to create real competition as sectors that were opened up, such as paging, were sunset businesses.

They pointed out that in the mobile sector, there remained really one dominant operator, China Mobile, with a struggling CDMA operator in China Unicom.

For the past month, the market has been flooded with reports of restructuring plans, but the regulators have remained silent. One of the more widely touted scenarios was merging the six basic telecommunications service operators into three mega groups.

Under this theory, China Telecom would take over Unicom's GSM network and the northern assets of small fixed-line carrier China Railcom. The second group would emerge from China Mobile absorbing China Satellite Communications Corp, and the third would involve Netcom merging with Unicom's CDMA network and the southern network of Railcom.

Mr Wang, however, was the first to propose a plan to the central government where China Telecom and Netcom would acquire one of Unicom's two mobile networks - preferably the profitable GSM system - which they would then divide up between them. The plan would allow four operators to maintain profitability without having to divide up Unicom.

At the company's first-half earnings press conference last week, he said he stood by that proposal.