China Telecom’s net profit fell 27.5% in the first half as the cost of competing in the wireless business took its toll on the new entrant.
It posted a first-half profit of 8,412 yuan ($1.23 billion), pegged back by the costs of mobile handset subsidies and interconnection fees.
Sales and general expenses soared 60% to 17.6 billion yuan, largely due to more than 4 billion in the phone subsidies, while it spent 8.7 billion yuan on interconnection charges, up 89%.
But chairman and CEO Wang Xiaochu said the fixed-line leader would boost handset subsidies to 37% of its mobile revenues this year, up from the previous guidance of 30%. The company may spend more than 10 billion yuan on handset subsidies, he said.
“This is higher than our previous guidance, because we believe it is necessary to spend more money [to boost the 3G uptake] in the first year of operation,” Wang told a media briefing on Thursday.
The company signed up 1.3 million 3G subscribers at the end of June, of which 1 million were using 3G data cards, while a paltry 300,000 were using EVDO handsets. The company hopes to add 30 million new subscribers this year, and increase its total mobile subscriber base to over 100 million by 2011 from about 39.3 million users at the end of the first half.
“Our priority now is on handsets. There were only 20 models of EVDO handsets earlier this year [when we took over the CDMA business from China Unicom] but we will expand the range of handsets to over 200 by year-end.”
its recent procurement
China Telecom also plans to move forward its rollout of EVDO network into some of the rural areas where there is demand for 3G services, to the second half of this year, Wang added.
“We still hope to make our mobile business profitable in 2011 but it may take a year longer to become profitable if [other operators pursue] “aggressive” competition,” he said.
China Telecom’s core fixed-line business shrank 3.1% in the half. It lost another 8.99 million access lines - or 4.3% of the total - as voice revenues fell 18.7%, although broadband sales rose 18.2%.