'Little Smart' spurs earnings of China Telecom

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Last updated at: (Beijing Time) Thursday, September 18, 2003

'Little Smart' spurs earnings of China Telecom

China Telecom reaped a net profit of 9.26 billion yuan, up 9 percent over the same period of last year. In a background of intensified market competition, the corporation netted gains rise instead of fall, which is generally attributed to Little Smart services.

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According to the 1st post-listing interim report released recently, China Telecom reaped a net profit of 9.26 billion yuan, up 9 percent over the same period of last year. In a background of intensified market competition, the corporation netted gains rise instead of fall, which is generally attributed to Little Smart services.

Vigorous development of Little Smart giving a boost to gains

The listing part of China Telecom includes quality assets in Shanghai, Jiangsu, Zhejiang and Guangdong. In the first half of this year sales of the corporation rose by 7 percent to 39.53 billion yuan. Earnings before interest, taxes, depreciation, and amortization (EBITDA) jumped by 10 percent, while the profit margin of EBITDA mounted up from 56.8 percent to 58.3 percent, a bit better than the average expectation of market analysts.

Previously China Mobile and China Unicom published their respective interim reports, which show a slip in quarterly earnings to the detriment to price battle. Market analysts therefore reckoned that China Telecom's above-par earnings despite of the adverse market climate mainly benefited from Little Smart and broadband businesses.

By the end of last June Little Smart subscribers to China Telecom had amounted to 5.4 million, an increase of 2.18 million or 68 percent year on year. Little Smart services, which absorb a low cost while develop vigorously, enable China Telecom to compete with China Mobile and China Unicom on the mobile communications market and even share a piece of "cake".

Broadband services form another major driving force behind China Telecom's achievements. By the end of last June, the corporation's broadband consumers had reached 25.62 million, an increase of 85.8 percent over the end of last year. Nonetheless, the contribution ratio broadband services to the gross gains remains as low as less than 5 percent.

Although China Televom's domestic direct dialing (DDD) business makes up a 52.6-percent market share, its revenues are stagnating, as shown by a revenue of 1.67 billion yuan during the year��s first half, a slight increase in comparison to 1.6 billion yuan during the same period of last year.

Little Smart subsidies implying secrete worries

Since this year China Telecom's shares price has been rising by 66 percent, far more than the 20-percent increasing scale of the large-cap stocks Hang Seng Index. Capital markets expect good development prospects of China Telecom's Little Smart and broadband services in the anticipation that the Chinese government will issue 3G licenses next year and China Telecom will naturally get one of them.

However, Little Smart subsidies arouse wide concern on markets. Currently in order to expand Little Smart subscribers and survive the competition with operators of China Mobile, subsidiary companies of China Telecom all render subsidies to Little Smart cell phones and therefore reduce fees for access to Little Smart networks, which somewhat increases the corporation's operating expenditures.

Another factor, which poses a threat to China Telecom late earnings, is the heterogeneous diversion of fixed-phone business created by mobile communications. Since people use mobile communications more frequently, the corporation's local phone service is tending downwards, with the average monthly income from per customer estimated to drop to 53 yuan from 57 yuan in the same period last year. In the meanwhile, markets will further strike the corporation's revenues from fixed-phone service in concern for the development of Little Smart service, which spares equal expenses as fix-phone service does.

Assets of six provinces and municipality expected to be acquired

According to the interim report, by the end of last June China Telecom had had 17.8 billion yuan of cash and cash equivalents on hand as well as a 15-percent rate of capital liabilities, a slight drop than 17 percent at the end of last year. Therefore, the corporation doesn't have such a problems as capital shortage at present.

Disclosed by an analyst, who has attended China Telecom analysis conference, China Telecom plans to complete the acquisition of the parent company's assets in six provinces and municipality, including Anhui, Fujian, Jiangxi, Guangxi, Sichuan and Chonaqing.

As scheduled by China Telecom, the listing company will take over the parent company's networks in all provinces and municipalities step by step.

By PD Online Staff Zhu Lizhen

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