China Telecom net profit down 9.5% as it spends to compete


China Telecom Corp. Ltd. Wednesday said net profit fell 9.5% last year from a year earlier, due to increased costs and competition as it fights with two other major carriers to attract high-value users.

The largest fixed-line operator by subscribers has been spending heavily on its mobile services business, bought in 2008 from China Unicom (Hong Kong) Ltd. as part of a government-mandated restructuring of the telecommunications sector.

China Telecom lags slightly behind China Unicom and China Mobile Ltd. in attracting users to its third-generation mobile services, which offer faster data speeds and more revenue per user than more common second-generation services. The company said it had a 30% market share for 3G subscribers at the end of last year.

China Telecom began offering Apple Inc.’s iPhone earlier this year to attract more high-value users, but analysts say spending on subsidies and marketing is affecting its bottom-line. China Telecom said it made an “appropriate increase” in iPhone marketing, which is “expected to significantly enhance the long-term sustainable growth and value creation despite the short term pressure on profitability.”

Analysts expect China Telecom’s net profit to grow by double digits this year due to its focus on attracting high-value users.

Net profit for the 12 months ended Dec. 31 fell to 14.93 billion yuan (US$2.38 billion) from CNY16.50 billion a year earlier, and revenue rose 15.5% to CNY283.07 billion from a restated CNY245.07 billion in 2011.

The net profit figure compares with the average CNY14.92 billion forecast of 28 analysts polled by Thomson Reuters.

Selling, general and administrative expenses rose 29.4% to CNY63.08 billion, and other operating expenses rose 39.7% to CNY40.34 billion.

The company flagged challenges such as increasing competition, an uncertain regulatory environment, and the rapid development of new technology.

China Mobile last week said net profit growth slowed from 2011, but said it would spend roughly US$7 billion on expanding its fourth-generation network. Analysts say China Telecom will lag behind China Mobile in fourth-generation services, though China Telecom has said it can make the transition quickly.