Bloomberg News

China Telecom Net Misses Estimates as Iphone Boosts Costs

April 27, 2012

Pedestrians walk past a China Telecom phone booth in Shanghai. Photographer: Qilai Shen/Bloomberg News

Pedestrians walk past a China Telecom phone booth in Shanghai. Photographer: Qilai Shen/Bloomberg News

China Telecom Corp. (728), the country’s biggest fixed-line carrier, posted first-quarter profit that missed analyst estimates as the introduction of Apple Inc. (AAPL:US)’s iPhone boosted costs to add subscribers at its wireless unit.

Net income fell 6.5 percent to 4.27 billion yuan ($677 million), from a restated 4.57 billion yuan a year earlier, the Beijing-based company said in a statement today. That compares with the 4.45 billion yuan average of four analysts’ estimates compiled by Bloomberg.

Larger wireless rivals China Mobile Ltd. (941) and China Unicom (Hong Kong) Ltd. (762) also reported profit that lagged analysts’ forecasts in the past week. China Telecom Chairman Wang Xiaochu reached an agreement with Apple to offer the iPhone from March 9, becoming the nation’s second carrier to offer the device with a subsidy after China Unicom. Those subsidies contributed to a 31 percent gain in sales costs, the company said today, without disclosing iPhone-specific costs.

“The increase in handset subsidies is quite significant and that is basically coming from the iPhone,” Kelvin Ho, a Hong Kong-based analyst at Yuanta Securities Co., said in an interview today. “If you exclude the iPhone impact, core earnings would probably have increased 10 percent.”

Operating Expenses

Sales in the quarter ended March rose 16 percent to 67.9 billion yuan, from 58.7 billion yuan. That beat the 67.3 billion-yuan average of four analysts’ estimates in the Bloomberg survey.

China Telecom rose as much as 1.5 percent to HK$4.17 in Hong Kong trading before the report, then pared gains to HK$4.13 at the close of trading. The stock has dropped 6.6 percent this year, compared with a 13 percent climb for the benchmark Hang Seng Index.

The company’s total operating expenses jumped 19 percent to 61.8 billion yuan in the first quarter, the company said in the statement. That included a 31 percent surge in selling costs to 14.2 billion yuan, it said.

“Following the launch of iPhone 4S in the period, the group made an appropriate increase in marketing initiatives for the profitable scale development of its mobile services,” China Telecom’s Wang said in today’s statement. That “is expected to significantly enhance its long-term sustainable growth and value creation despite the short-term pressure on its profitability,” he said.

The company said its high-speed, third-generation network wireless service is “entering into a phase of accelerated growth.”

User Additions

The mobile unit added 9.36 million users during the period, boosting China Telecom’s subscriber base to 135.8 million at the end of March, according to the statement. It ranks third in wireless users in the Asian nation, behind China Mobile and China Unicom. China Telecom had 43.6 million 3G users.

Monthly average revenue per user at the mobile unit was 51.7 yuan in the quarter, “primarily stable” from the full- year figure for 2011, the company said.

The company entered the wireless market in 2008 by acquiring the smaller of China Unicom’s two mobile divisions in a government-led revamp of the country’s mobile-phone industry.

China Mobile on April 20 posted a 3.5 percent gain in profit to 27.8 billion yuan, trailing the 28.2 billion yuan median of four estimates by analysts in a Bloomberg News survey. China Unicom on April 25 reported net income rose to 1 billion yuan, missing the 1.1 billion yuan median of six analysts’ estimates in a Bloomberg News survey.

To contact Bloomberg News staff for this story: Edmond Lococo in Beijing at elococo@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net


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