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China Telecom Corporation Limited : China Telecom Earnings Fall on Rising Costs

10/29/2012 | 02:29am US/Eastern

BEIJING--China Telecom Corp.'s (CHA) January-September net profit fell 8% from a year earlier as increased costs associated with handset sales and network lease fees outweighed rising revenue.

China's largest fixed-line operator by subscribers has been spending heavily to fuel growth in the mobile services business it bought from rival China Unicom (Hong Kong) Ltd. in 2008 as part of a government-mandated restructuring of the China's telecommunications sector.

China Telecom, which started selling Apple Inc.'s iPhone in China earlier this year, still lags behind China Unicom and China Mobile Ltd. in the race to attract users of third-generation mobile services, which offer faster data speeds and more revenue per user than more common second-generation services.

Net profit in the nine months ended Sept. 30 totaled 12.56 billion yuan ($1.99 billion), down from a restated 13.66 billion yuan a year earlier. Revenue rose 15% to 209.98 billion yuan from a restated 182.48 billion yuan.

Sales promotions and higher costs associated with selling more mobile devices increased expenses in the January-September period. Selling, general and administrative expenses in the period rose 35% from a year earlier to 45.17 billion yuan, while other operating expenses rose 44% to 29.98 billion yuan.

China Telecom said marketing initiatives also increased following its iPhone launch, which put it up against rival China Unicom as the only official sellers of the smartphone in China. China Mobile doesn't offer the popular high-end phone because it has its own unique 3G standard that isn't widely used outside of China.

China Telecom said it added 8.76 million subscribers for its 3G mobile services in the third quarter, speeding up from about 7.41 million in the second quarter. That nonetheless left the company with 59.72 million 3G subscribers, less than China Unicom's 66.9 million and China Mobile's 75.6 million.

Average monthly revenue per user, a key measure of the long-term growth rate of telecom companies, for China Telecom's mobile services in the January-September period was 52.7 yuan, the company said. This was "primarily stable" compared with the figure for all of 2011, it said.

The company said strong growth in Internet and data services helped to mitigate the decline in users for its wireline voice services, which have fallen as customers increasingly switch to mobile phones from land-line phones.

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

Subscribe to WSJ: http://online.wsj.com?mod=djnwires

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