China Telecom Corp Ltd yesterday posted a 4 percent drop in its first-half earnings, with the slow growth of its fixed-line phone service taking the shine off the strong performance of its broadband Internet and pay-per-view TV businesses.

 

Analysts said that the future prospects of the mainland's largest fixed-line operator depend on when the central government will issue the first batch of third-generation (3G) licences, a move which would help China Telecom and its smaller rival China Netcom to diversify into the lucrative mobile sector.

 

China Telecom earned 14.1 billion yuan (US$1.77 billion) from January to June, compared to 14.7 billion yuan (US$1.84 billion) a year ago. The figures were calculated after including upfront connection fees, a one-off charge for installing telephones, wires and other equipment for first-time users.

 

Mobile operators have been snapping up users from China Telecom, denting the company's staple business. Revenue from local calls fell 2.5 percent, while revenue from long-distance calls dropped 1.2 percent in the first half of the year.

 

These declines came despite an increase in subscribers. China Telecom recruited 8.62 million new users in the first half of this year, bringing its total to 219 million.

 

However, average revenue per user, an indication of spending per user, came in at 47.6 yuan (US$5.95), a year-on-year slump of 9.8 percent.

 

China Telecom Chairman Wang Xiaochu said that continuous drops in mobile service fees would have a major impact on fixed-line companies.

 

With mobile phones now siderlining fixed-line phones services, "I don't think there is anything can be done to reverse the trend, and China Telecom has to explore other profit engines," said Ricky Cheung, a fund manager at Phillip Capital Management (HK).

 

Broadband Internet and TV services seem to be an option, as they rescued the company's bottom line in the first half of the year.

 

China Telecom's non-voice revenue leapt 22 percent to 23.24 billion yuan (US$2.9 billion) and accounted for 27.5 percent of overall turnover, up from 23.6 percent in the first half of 2005.

 

Its broadband subscribers leapt 45.5 percent to 25.26 million in the first half of this year.

 

But 3G could be its ultimate savior, said Cheung.

 

"Whether China Telecom's growth can be sustained or sped up depends on the development of its 3G business," said Cheung.

 

After several false starts, industry leaders now expect the central government to start issuing 3G licences early next year.

 

Wang said the firm was in talks with five potential foreign investors, but stressed that talks were at an early stage given the question marks hanging over 3G timetables and technology standards.

 

"We've been in contact with several foreign companies, but 3G is still an uncertain factor so the value of China Telecom has not been fully represented," Wang told reporters.

 

He also revealed China Telecom's trial run of the mainland's homegrown TD-SCDMA standard, one of the 3G standards, would take longer than scheduled, being due for completion in June. He declined to elaborate on the test results so far.

 

The Chinese mainland is the world's biggest telecom market, with 431.8 million mobile subscribers and 366.6 million fixed-line users at the end of July, according to official statistics.

 

(China Daily August 31, 2006)