Thursday August 27, 11:30 AM

China Telecom posts 30 pct fall in Q2 net

BEIJING (Reuters) - China Telecom Corp's quarterly profit fell 30 percent but beat analysts' low expectations, as the nation's largest fixed-line carrier faces rising pressure from losses to its core landline subscribers and costs associated with a 3G service buildout.

Beijing reshuffled the country's telecoms industry last year to create three full-service carriers, pitting China Telecom and China Unicom against China Mobile, the world's largest mobile carrier by subscribers.

Adding to the more intense competitive environment following the reshuffle, the three carriers will spend a total of $58.5 billion through 2011, building their 3G networks.

On top of that expenditure, the trio are expected to incur increased costs from marketing and subsidies as they compete aggressively for 3G customers and the anticipated higher profit margins.

China Telecom said that there was "short term pressure on the company's profitability" due to capital expenditure, but the increase in marketing programmes for its mobile services will help future value creation.

The company did not pay an interim dividend, but said it would revisit the issue at the end of the year.

China Telecom posted a second-quarter profit of 4.3 billion yuan ($629.6 million). The quarterly results compare to the 6.16 billion yuan a year earlier and the 3.44 billion yuan consensus forecast from a poll of eight analysts.

But EBITDA profit margin continued to slip to 42.3 percent from 43.6 pct in the first quarter and 49.5 percent a year ago, a trend that is likely to continue into the second half when the company is looking to roll out 3G services.

China Telecom said its first-half revenue from fixed-line voice services fell 18.7 percent.

While the company has said it was aiming to sign up 100 million mobile subscribers and 65 million broadband users by 2011, local media have reported that customers are hesitant to subscribe to the more expensive 3G service.

The results come after China Mobile posted disappointing earnings last week.

However, the share prices of all three companies lagged the 35.8 percent jump by Hong Kong's China enterprises index over the same period.

(For a the full earnings report from the Hong Kong stock exchange click: http://www.hkexnews.hk/listedco/listconews/sehk/20090827/LTN20090827090.pdf)

($=6.83 yuan)

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