Largest Chinese fixed-line carrier to bank on smartphones for growth

HONG KONG - China Telecom Corp, the country's biggest fixed-line carrier, reported that second-quarter profit rose 12 percent as its mobile-phone unit increased the subscriber base by almost half.

Profit excluding gains from connection fees rose to 5.09 billion yuan ($796 million) in the three months ended June 30, from 4.54 billion yuan a year earlier, the Beijing-based company said in a statement on its website. That was in line with the 5.05-billion-yuan average of six analysts' estimates compiled by Bloomberg.

Second-quarter sales rose 12 percent to 61.4 billion yuan, beating the 59.7 billion-yuan average of six analysts' estimates.

Chairman Wang Xiaochu has taken advantage of his Code Division Multiple Access (CDMA) international network standard to attract new subscribers with smartphones including Samsung Electronics Co's Galaxy Ace and Motorola Mobility Holdings Inc's Moto XT800. Wang may strike a deal by the end of the year to become the second Chinese carrier after China Unicom (Hong Kong) Ltd to offer Apple Inc's iPhone, according to UBS AG analyst Wang Jinjin.

"The CDMA business continued to drive up revenue growth," Wang Jinjin wrote in a report to clients on Aug 8. "Compared with two to three years ago when China Telecom first started the CDMA business, the ecosystem of CDMA handsets has largely improved owing to China Telecom's efforts."

Offering iPhones would boost profits even if the carrier had to increase handset subsidies to do so, Chairman Wang Xiaochu told reporters at a briefing in Hong Kong on Tuesday. However, he did not confirm whether China Telecom would offer the iPhone.

China Telecom's mobile-phone unit turned a profit in the first half, six months earlier than expected, Wang Xiaochu said.

He added that the unit had been expected to become profitable by the end of the year. But he declined to reveal the profit figure.

China Telecom shares rose 4.8 percent to close at HK$4.60 (59 cents) in Hong Kong trading on Tuesday. The benchmark Hang Seng Index rose 2 percent to 19875.53.

The company now offers more than 100 smartphone models for the third-generation (3G) network, with many of them priced at around 1,000 yuan.

"In the first half, we have achieved a critical breakthrough in 3G smartphones," Wang Xiaochu said. "We followed the market momentum of mobile Internet services, leveraging the convergence of wireline and mobile services and riding on smartphone handset terminals."

In the second quarter, the company's mobile unit added 8.12 million users, boosting its subscriber base to 108.4 million at the end of June, up from 74.5 million a year earlier.

The company ranks third in terms of the number of wireless users in China, behind China Mobile Ltd and China Unicom.

China Telecom entered the wireless market in 2008 by acquiring the smaller of China Unicom's two mobile divisions in a government-led revamp of the Chinese mobile-phone industry.

China Mobile on Thursday reported a 7 percent gain in second-quarter profit that beat analysts' estimates after data traffic rose on demand for games and videos from smartphone users. China Unicom will report earnings on Wednesday.

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