China Telecom profit drops 8% due to iPhone subsidies

China Telecom reported declining profits for the first nine months of the year as higher costs associated with its launch of the iPhone ate into revenues.

The smallest of China’s three network operators, China Telecom (Beijing, China) boasted a 15.1% increase in operating revenues for the first nine months, to 210 billion yuan ($33.6 billion), compared with the corresponding period of 2011, with take-up of smartphone services fuelling top-line growth.

China Telecom reported declining profits for the first nine months of the year as higher costs associated with its launch of the iPhone ate into revenues.

The smallest of China’s three network operators, China Telecom (Beijing, China) boasted a 15.1% increase in operating revenues for the first nine months, to 210 billion yuan ($33.6 billion), compared with the corresponding period of 2011, with take-up of smartphone services fuelling top-line growth.

But the heavy discounts it attaches to higher-end devices – including the iPhone, which it began offering in February – sent net profit down by 7.8%, to 12.6 billion yuan.

Growth in the usage of mobile data services also forced the company to increase spending on the lease of network capacity.

Key performance indicators show that China Telecom signed up 8.76 million 3G customers in the last three-month reporting period, its most impressive quarterly gains in over a year.

Nevertheless, the figures also indicate that overall customer growth in the mobile-phone sector is slowing down, with net additions of 8.44 million, compared with 8.58 million in the third quarter of 2011.

What’s more, the higher figure for 3G additions shows that many of those customers were existing China Telecom subscribers upgrading from 2G services.

In total, China Telecom now has 152.62 million mobile-phone customers, 59.72 million of which are on 3G tariffs.

That compares with 66.9 million 3G customers at China Unicom (Beijing, China) and 75.6 million at China Mobile (Beijing, China), but China Telecom’s 3G business has been growing faster.

The company has a clear advantage over China Mobile, which is unable to provide current versions of the iPhone because they are incompatible with its TD-SCDMA network technology.

Even so, China Mobile is leading the way on the rollout of 4G technology and likely to become a more serious threat in the smartphone business once it launches 4G services.

China Telecom remains the country’s biggest fixed-line provider, but line losses accelerated to 1.53 million in the recent quarter, from 1.26 million in the same part of 2011, as customers abandoned traditional telephony products.

The operator also reported a slowdown in the rate of broadband subscriber growth, adding 3.26 million new customers, compared with 3.6 million a year earlier.

Weakness in the Chinese economy, as GDP growth slows, is likely to be responsible for the broadband decline.