China Telecom Profit Falls on Rising Expenses - Wall Street Journal

By PAUL MOZUR

BEIJINGâ€"China Telecom Corp.'s unaudited first-quarter net profit fell 6.5% from a year earlier on rising expenses, making it the only one of China's three major telecommunications providers to post a fall in net profit during the three-month period.

Although China's largest fixed-line telecom operator by subscribers had the least number of third-generation mobile subscriptions compared to its rivals and faces stiff competition in the country's increasingly saturated mobile market, it was cheered by growth in its more profitable mobile business.

China Telecom said net profit for the three months ended March 31 was 4.27 billion yuan ($677.2 million), down from 4.57 billion yuan a year earlier. Operating revenue rose 15.7% to 67.93 billion yuan from 58.72 billion yuan.

Despite the fall in net profit, China Telecom Chief Executive Wang Xiaochu struck a positive tone, as "mobile services continued to grow rapidly, demonstrating...rapid expansion in mobile customer scale and revenues as well as progressive increase in subscriber market share."

China Telecom said the fall in first-quarter net profit was due to rising network lease and handset sales costs as the company launched marketing initiatives to support its March launch of Apple Inc.'s iPhone 4s. It is the first mobile operator in China to offer Apple's latest handset.

China Telecom has been using the launch of the iPhone 4S in the race with rivals China Mobile and China Unicom to attract users of third-generation mobile services, which offer faster data speeds and more revenue per user than the more common second-generation technology.

However, China Telecom's 3G user growth lagged behind its rivals in March, when it added 2.40 million users compared with China Mobile's 2.975 million increase and China Unicom's 2.966 million rise. China Telecom said it had a total of 43.55 million 3G users at the end of March, fewer than China Mobile's 59.563 million and China Unicom's 48.860 million.

Despite the setback last month, China Telecom has kept pace with the growth of its rivals in the more profitable 3G mobile sector space in recent months, and pointed out its growth in 3G users has helped its average revenue per user, a key measure of the long-term growth rate of telecom companies, stabilize to 51.7 yuan. It didn't provide a figure for comparison. Last year, its ARPU was 52.4 yuan, down from 54.2 yuan in 2010.

Nonetheless it said it faces challenges because of increasing competition in China's mobile market.

Selling, general and administrative expenses in the first quarter grew 31% to 14.18 billion yuan from a year earlier, while other operating expenses rose 45% to 9.34 billion yuan. The company also said network operations and support expenses grew 23.8% to 14.77 billion yuan.

Write to Paul Mozur at paul.mozur@dowjones.com