China Telecom FY2009 results

China Telecom's Full-Year Profit Soars
By LORRAINE LUK

HONG KONG--China Telecom Corp., the country's largest fixed-line operator by subscribers, reported a jump in full-year net profit as the company's year-earlier result was weighed by an impairment loss associated with its mobile business.

China Telecom has been trying to boost its competitiveness in the mobile business after buying rival China Unicom (Hong Kong) Ltd.'s code division multiple access business in 2008 as part of a government mandated restructuring of its telecom sector.

But despite the purchase, China Telecom has still been a laggard in the mobile business compared with China Mobile Ltd. and China Unicom. Analysts said competition in the industry is likely to rise further this year and operators will be bogged down by higher marketing expenses and rising network depreciation costs.

Net profit for the 12 months ended Dec. 31 rose to 14.42 billion yuan (US$2.11 billion), from 884 million yuan a year earlier, when the company booked a 24.17 billion yuan impairment loss on property, plants and equipment mainly associated with the mobile business. The year-to-year jump was in line with expectations.

Stripping out the one-off impairment loss and amortization of non-cash connection fees, the company said its adjusted profit for last year was 13.27 billion yuan, down 34% from an adjusted profit of 20.07 billion yuan in 2008.

Revenue rose 12% to 209.37 billion yuan from 186.53 billion yuan.

China Telecom said it plans to increase its capital spending slightly this year on high-growth broadband and value-added mobile services amid rising competition in China's telecommunications industry, which it said poses serious challenges for the company. China Telecom plans capital spending of 39 billion yuan this year, up slightly from 38.04 billion yuan in 2009.

To boost its competitiveness, the company plans to offer Research In Motion Ltd.'s Blackberry devices in China in May and Palm Inc.'s Pre handsets in July, Chairman and Chief Executive Wang Xiaochu said at a news conference.

China Telecom is the second Chinese mobile operator to sign a deal with Canada-based RIM to offer Blackberry devices. China Unicom offers Apple Inc.'s iPhones. China Telecom hopes Blackberry devices will help attract more affluent customers in Chinese cities. RIM has offered Blackberry handsets to big businesses in China since 2006 through China Mobile, the world's biggest telecom operator by subscribers.

Average revenue per user--a key industry gauge to determine the long-term growth rate of telecom operators--for China Telecom's mobile business fell to 59.50 yuan in 2009 from 63.40 yuan a year earlier because of tough competition, the company said.

Mr. Wang said the company will continue its efforts to make its mobile business profitable, and that he expects it to turn a profit in 2011.

Mr. Wang reiterated the company expects its core profit—which excludes items such as impairment and amortization of upfront connection fees—bottomed out in 2009 and will resume growth this year. The company said selling, general and administrative costs in 2009 rose 47% to 40.51 billion yuan from 27.5 billion yuan a year earlier, mainly driven by handset subsidies of 10.1 billion yuan in the 12 months ended Dec. 31.

Last year, handset subsidies accounted for 33.6% of the company's mobile revenue, lower than the company's previous guidance of 37%.

China Telecom plans to lower its handset subsidies as a proportion of mobile revenue this year, Mr. Wang said. The company plans subsidies of more than 10 billion yuan to meet its target of adding 30 million mobile subscribers in 2010, including eight million third-generation, or 3G, subscribers.

China Telecom said it had 56.29 million mobile subscribers at the end of December, of which 4.07 million were 3G users. It maintained its target of having more than 100 million mobile subscribers in 2011.

To mitigate the decline in its fixed-line voice business, China Telecom has been focusing on increasing its revenue from value-added services.

Mr. Wang said the company is offering mobile payment services in 18 cities by cooperating with Chinese banks. But he said "China Telecom has no plan...and I think no need to invest in a Chinese bank for mobile payment services. We are already cooperating well with the local banks."

The comments came after China Mobile said this month it planned to buy a 20% stake in Shanghai Pudong Development Bank Co. for 39.8 billion yuan to expand into mobile payment services.