China Telecom Hit by Taxes as 4G Subs Soar
China Telecom has blamed new taxes for a 4% year-on-year fall in net profit during the first six months of the year despite also recording a surge in its base of 4G customers.
The smallest of China's three national mobile carriers saw net profit drop to about 11 billion Chinese yuan (US$1.72 billion), with revenues falling 0.6%, to RMB165 billion ($25.8 billion), over the same period.
The operator insisted that revenues would have grown by 3.5%, while net profit would have been 11.3% higher, were it not for a value-added tax reform driven through by Chinese authorities.
The company has also been under regulatory pressure to cut the fees it charges subscribers to its fixed and mobile services.
The earnings setback came even though China Telecom Corp. Ltd. (NYSE: CHA) flagged a dramatic increase in the number of 4G customers it serves -- up from just 7 million at the end of 2014 to as many as 29 million in June.
Although that still leaves China Telecom a long way behind 4G market leader China Mobile Ltd. (NYSE: CHL), which had as many as 143.1 million 4G customers in March, it shows the launch of FDD services is now fueling 4G growth. (See China Mobile Profits Fall Seventh Quarter in a Row.)
Along with number-two player China Unicom Ltd. (NYSE: CHU), China Telecom received an FDD license earlier this year, having previously had to rely on TDD technology to support its 4G rollout.
China Mobile launched TDD-based services well in advance of its rivals, both of which have indicated a preference for the FDD variant.
While TDD uses one spectrum slot for all communications, FDD brings separate channels into play for the uplink and downlink and is more widely used in other parts of the world.
China Telecom's overall number of mobile customers has risen by 5.82 million since the end of last year, to 191 million, but a sharp increase in revenues from mobile data services has been matched by a decline of similar size in the mobile voice business.
Mobile average revenue per user (ARPU) came in at RMB55.1 ($8.61) per month -- down from RMB56.1 ($8.77) in the year-earlier half, but an improvement on the figure of RMB53.1 ($8.30) in the last six months of 2014.
The operator claimed that ARPU for 4G customers was as much as RMB86 ($13.44) per month.
At its fixed-line business, which still accounts for about 53% of total revenues, China Telecom also witnessed a fall in monthly ARPU for broadband customers -- down to RMB57.8 ($9.03) from RMB59.4 ($9.28) in the first half of 2014 -- while overall subscriber numbers rose from 104.13 million to 109.56 million over the same period.
Growth was driven largely by take-up of fiber-to-the-home (FTTH) services, with China Telecom serving about 54 million FTTH subscribers in June compared with 33 million one year earlier.
The operator plans to spend RMB107.8 billion ($16.9 billion) in capital expenditure this year, up from RMB76.9 billion ($12 billion) in 2014, with most of the funding earmarked for investment in the rollout of 4G and fiber networks.
Even so, a tower-sharing venture it has set up with its chief rivals is expected to speed up network deployment and help it reduce its capex bill.
In a presentation, China Telecom said that 70% of the 60,000 towers provided by the venture in the first half of 2015 made use of existing infrastructure owned by its competitors.
— Iain Morris, , News Editor, Light Reading