China Telecom underlying net dips, high hopes for 3G

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(Agencies)
Updated: 2009-03-24 15:10

China Telecom Corp on Tuesday reported a sharp fall in quarterly underlying profit amid growing pressure on its core fixed-line phone business, as it posted a net loss in the last quarter due to a large write-off.

China's dominant fixed-line phone company is counting on its newly acquired 3G wireless network, based on the standard known as CDMA, to power its growth going forward as its fixed-line business matures.

The company said that its wireline revenue grew just 0.6 percent last year from 2007, while EBITDA (earnings before interest, taxes, depreciation and amortization) margin fell 1 percentage point to 48 percent.

The CDMA mobile network on which China Telecom is pinning its hopes lost a net 60,000 subscribers in 2008, under previous ownership. But it got off to a strong start in 2009 with the addition of more than 1 million subscribers in January.

Reflecting its bullish plans for the service, the company set a target of 100 million mobile subscribers by 2011, more than triple the 30.63 million at the end of February.

"The next two to three years will be an important strategic opportunity for us," the company said in a statement. "3G business development will be a golden chance for us to integrate the 3G services into our...operations, so as to achieve unified deployment and steady corporate development."

China Telecom on Tuesday posted a 16.4 billion yuan ($2.40 billion) net loss for the fourth quarter, as it took large provisions for PHS, its low-end wireless service that it will retire soon.

Excluding the PHS provision, the company reported that fourth-quarter profit still tumbled 58 percent to 2.8 billion yuan, from a 6.6 billion yuan profit a year earlier.

Six analysts polled by Reuters had forecast China Telecom would post an average fourth-quarter net loss of 15.1 billion yuan including provisions for PHS, and a 1.9 billion profit excluding them.

The company posted fourth-quarter revenue of 52.45 billion yuan, up 9 percent from a year earlier.

Analysts said attracting 3G subscribers would entail huge subsidies that could squeeze profit margins going forward, while China Telecom's core fixed-line client base could continue to shrink as business usage drops due to a slowing economy and intensifying competition.

"China's telecom market is no longer dominated by one player. We will have three players sharing this growing market," said Sunny Wong, managing director for research at BOCI.

For full-year 2008, China Telecom posted a net profit of 884 million yuan, as earnings from its core business were wiped out by the PHS write-off and other charges.

Shares in China Telecom fell in the fourth quarter by 7.7 percent sequentially, faring better than the 20 percent drop in the benchmark Hang Seng Index.

China Telecom competes with China Mobile and China Unicom to provide telecoms services in the world's largest market by subscribers.

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