Sluggish growth expected amid shift to mobile phones China Netcom Group Corp, the mainland's second-largest fixed-line telephone operator, said profit fell 6.68 per cent last year and it expects sluggish revenue growth this year as more subscribers switch to mobile telephones. The company, listed in November 2004, said consolidated net profit dropped to 12.96 billion yuan from 13.89 billion yuan in 2005, while revenue rose 1.23 per cent to 86.92 billion yuan from 85.86 billion yuan. Profit from continuing operations, which exclude one-off items such as upfront connection fees, fell 1.1 per cent to 9.75 billion yuan. A final dividend of 55.3 HK cents per share will be paid. Netcom booked upfront connection fees of 2.4 billion yuan, a one-time gain from the 1.8 billion yuan disposal of Asia Netcom in May last year as well as 'other income' of 621 million yuan that it did not explain. 'If we took this [other income] out, its performance would be much worse than estimated,' said Wong Chi-man, a telecommunications analyst at Everbright Securities. Shares in Netcom fell 2.45 per cent to close at HK$19.90 after the company released the earnings report during the afternoon break. As more subscribers in the mainland shifted to mobile telephones from fixed lines, Netcom's revenue from local voice service, excluding domestic long-distance and international calls, dropped 8.9 per cent to 40 billion yuan. Fixed-line subscriber numbers fell 0.3 per cent to 114 million, of whom 27 million came from its limited wireless Xiaolingtong service. Average revenue per user also declined, by 7.4 per cent to 41.30 yuan from 44.60 yuan. 'Our fixed-line business in northern China was not performing well compared with our southern China counterpart [China Telecom], as the living standard in the south is better than the north,' said Li Fushen, the company's chief financial officer. Mr Li added that revenue was expected to rise 2 to 3 per cent this year. Netcom is hoping to break into the mobile market to broaden revenue. It is widely expected to be awarded a third-generation licence this year as part of the industry restructuring. 'Until now, the government has not sent us a proposal to seek our opinion on the restructuring,' chairman Zhang Chunjiang said, but he added that he believed the company would get a licence. Providing 3G services for the 2008 Olympic Games in Beijing was the responsibility of China Mobile, and Netcom 'is only an official fixed-line operator', he said. Netcom was also reported to be in talks to buy China Unicom's GSM mobile network, which Mr Zhang denied yesterday. Unicom also denied last week it was in talks to sell the network. Market speculation of the company buying Unicom's GSM assets was sparked by analysts' reports after an investor lunch meeting with Netcom. Chief executive Zuo Xunsheng said he was misunderstood during the meeting. He did not elaborate. To sustain growth, Mr Zuo said Netcom would bundle its fixed-line service with other high-growth businesses such as broadband and offer more flexible tariff plans to reduce the churn rate. Broadband service remained the company's earnings driver, with revenue rising 34.9 per cent to 10.5 billion yuan last year and average revenue per user edging up to 66.30 yuan from 65.30 yuan in 2005.