China Telecom Corp. Ltd. (NYSE: CHA) is the second Chinese operator within a week to report lower monthly average revenue per user (ARPU) figures for 2009, following a year of intense competition and, of course, the impact of the global economic downturn. (See China Mobile Crunches Its Capex.)

In its full-year results for 2009, China Telecom says its monthly ARPU from mobile services declined to 59.5 yuan renminbi (US$8.72) last year from an average of RMB63.4 ($9.29) in 2008. Fixed-line broadband ARPU also declined, to RMB80.3 ($11.76) from RMB83.7 ($12.26) in 2008.

China Telecom's 2009 total revenues were RMB208.3 billion ($30.5 billion), up nearly 13 percent from 2008, but net income was down nearly 34 percent to RMB13.3 billion ($1.95 billion).

The country's carriers all recognize they're operating in a much more competitive environment, and are all seeking new ways to generate revenue growth. China Mobile Ltd. (NYSE: CHL), for example, is focusing on new value-added mobile services, such as music, video, and mobile Internet services.

China Telecom, which became a mobile operator when it inherited China Unicom Ltd. (NYSE: CHU)'s CDMA operations as part of the revamp of the Chinese telecommunications sector in 2008, is looking to rapidly build its mobile and fixed broadband access businesses. (See China Begins Carrier Revamp.)

Ultimately, it intends to drive a greater convergence of its fixed, mobile, and Internet businesses, but it still has some legacy and integration issues to deal with, particularly in the fixed voice segment, where revenue declined to RMB78.4 billion ($11.5 billion) in 2009 from RMB96.3 billion ($14.1 billion) in 2008.

That fall was down to the lower number of fixed access lines in operation -- 188.6 million at the end of 2009, down nearly 20 million during the year as people turned to their mobile phones as their main mode of communication. Broadband is still growing in popularity, though: China Telecom ended the year with 53.5 million fixed broadband customers, up by 9.2 million from a year earlier.

The carrier's mobile business is altogether more healthy. Revenues from China Telecom's CDMA operations grew six-fold to RMB35.6 billion ($5.2 billion) for the year, of which RMB20 billion ($2.9 billion) came from voice services, RMB10 billion ($1.46 billion) from data, and RMB5.6 billion ($820 million) from terminal sales.

Its mobile subscriber base increased to 56 million by the end of 2009 from 27.9 million a year earlier. China Telecom ended the year with just more than 4 million 3G subscribers, roughly 12 months after being awarded its license. (See China Pumps $15B Into 3G and China Awards 3G Licenses.)

But acquiring those new mobile customers came at a heavy cost. Mobile handset subsidization costs rocketed to RMB10 billion ($1.46 billion) in 2009, up from RMB883 million ($129 million) in 2008, pushing up total SG&A (selling, general, and administrative) costs to RMB40.5 billion ($5.9 billion) from RMB27.5 billion ($4 billion).

This level of subsidization looks set to continue, as China Telecom aims to have more than 100 million mobile subscribers by 2011. But the company is playing catchup with China Mobile, which still dominates the mobile market in China with 527 million mobile subscribers by the end of January 2010.

Like China Mobile, China Telecom has been reining in capital expenditure, which dropped from RMB48.4 billion ($7.1 billion) in 2008 to RMB38 billion ($5.5 billion) in 2009. The company plans to maintain capex at around RMB39 billion ($5.7 billion), or 18.3 percent of operating revenues, in 2010. The company says it will reduce capex in traditional wireline voice and network infrastructure, but will maintain investment in broadband and Internet services and value-added services.

— Anne Morris, freelance editor, special to Light Reading