Fitch Ratings assigned on Wednesday a Long-term foreign currency Issuer Default Rating ("IDR") of 'A-' (A minus) to China Telecom Corporation Limited ("CTCL"). The Outlook on the rating is Stable.

CTCL's rating reflects its position as the dominant fixed-line operator in China's southern provincial markets with strong brand visibility, leading market shares in local access and broadband services, relatively stable profitability and a sound financial profile following free cash flow ("FCF") generation over the past two years.

The rating also takes into consideration the robust demand and good growth prospects in China's telecom market which has a low penetration rate (though the growth in fixed-line subscribers is easing and future penetration will mainly be in the less developed provinces and rural areas) and the limited number of competitors in the local access market.

Fitch warns that CTCL's credit strengths could be undermined by intensifying competition exerting downward pressure on its tariffs and margins, uncertainties associated with potential regulatory changes and industry restructuring as well as heightening business risks due to rapid technological evolution.

While obtaining a mobile/3G license would enable CTCL to better manage substitution risk and to strengthen its business profile in the long term, high capex requirements for wireless investment as well as the possibility of further acquisitions could result in higher financial leverage and/or higher business risk over the short-to-medium term.

Nevertheless, Fitch does not expect the intensifying competition and potential regulatory changes in the domestic telecom industry to materially weaken its overall credit profile in the near term given the China's promising growth prospects and the government's track record of adopting a measured approach to industry development and transition. These have been factored into the Stable Outlook.

CTCL currently operates fixed-line (including fixed-wireless) voice and internet-related businesses in 20 southern provincial markets, enjoying local access market share of around 95percent in these provinces. Listed in 2002, CTCL was still 70.9percent-owned by the wholly state-owned CTC as at the fiscal year of 2005.

By People's Daily Online