Chinese operators are reporting growth after a couple of years of stagnant results, but they're also struggling to contain the costs of their emerging digital revenue streams.

China Telecom, the last of the three telcos to issue Q1 earnings, reports a 10.6% rise net income to 6.44 billion yuan (US$993 million). Operating revenue was 12.7% higher, with increased sales in broadband, mobile and enterprise.

The telcos stock on the HKSE closed 2.6% higher Wednesday following the announcement.

Figure 1: Looking forward: China Telecom has reported a 10% growth in profits, mirroring a mixed bag across the telco board in the country.
(Source: Jorick Jing on Unsplash)

But like China Mobile and in particular China Unicom, it is feeling the squeeze on expenses as it tries to grow new smart home, 5G and digital enterprise businesses.

Mixed messaging

Last week China Unicom posted a 21% rise in profit but with flat EBITDA thanks to burgeoning costs. China Mobile improved profit by just 2.3% despite a 9.5% rise in revenue and warned of rising power and other expenses.

China Telecom increased Q1 EBITDA just 3% as costs rose across the board. The biggest increase was network expenses, up 13.6% as the company said it "continuously optimized network quality."

Staff costs rose 8.2% as a result of increased compensation for frontline employees and the hiring of external tech talent to boost the company's digital capabilities.

Famous five

As with its rivals, China Telecom reported another quarter of heavy 5G subs growth.

It now has 111.2 million 5G package subscribers, up from 86.5 million three months ago, and accounting for 31.2% of all mobile subs.

It didn't disclose details of its 5G business but said mobile service revenue had grown 8.1%, achieving blended mobile ARPU of 45.6 yuan, up from 44.1 yuan in December.

The broadband business grew a brisk 9.8% to 18.9 billion yuan, with the blended ARPU, including smart home services, improving 6.9% over last year.

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Like Mobile and Unicom, China Telecom's enterprise group, covering industry cloud, data centers, IoT and big data, grew at a healthy clip. Sales lifted 13.4% to 23.9 billion yuan ($3.7 billion), just under a quarter of total service revenue.

Looking ahead, the company said it would strengthen innovation around problem-solving core technologies and accelerate the integration of 5G, cloud and AI.

China Telecom confirmed Tuesday the China Securities Regulatory Commission had given the go-ahead for it to list on the Shanghai main board.

The company has said it will list 13% of its stock as A-shares on the domestic exchange, expected to fetch approximately $4 billion.

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— Robert Clark, contributing editor, special to Light Reading