China Telecom has announced plans to buy 3G infrastructure from China Telecommunications Corporation, its state-run parent, while reporting an 8.3% fall in net profit for the first half of the year, to 8.8 billion yuan ($1.4 billion), compared with the same period in 2011.
The operator, which competes against bigger rivals China Mobile and China Unicom in the mobile-phone market, says it will spend approximately 84.6 billion yuan on CDMA infrastructure currently owned by China Telecommunications Corporation.
It hopes the deal will help it to reduce operational expenses and boost earnings in the future.
As its customer base grows, China Telecom faces rising costs to rent capacity on the network. It also lacks control over investment decisions taken regarding the infrastructure it uses.
The operator’s net profit decline came despite a 14.8% rise in first-half revenues, to 138 billion yuan.
China Telecom has invested heavily in marketing its mobile offers. It also spent between 23% and 24% of its revenues on subsidizing handsets other than the iPhone, which it began to offer to customers earlier this year.
“The company believes that the launch of the iPhone to expand the high-end market would require an appropriate increase in marketing initiatives which would create short-term pressure on profitability [but] ... would enhance long-term sustainable growth and value creation for the company,” said the company in a statement.
China Telecom had acquired some 147 million mobile subscribers, including 54 million 3G customers, by the end of the first half, compared with the 688 million mobile customers, including 69 million 3G ones, served by China Mobile.
China Telecom also operates China’s biggest fixed-line network, with 167 million access lines in service at the end of the first half.
Although that number represented a decrease of 2.1 million, compared with the first half of 2011, China Telecom has enjoyed success in the fixed-line broadband sector, growing its customer base to 83.7 million, from 76.8 million this time last year, and increasing revenues by 12.1% to 33.4 billion yuan.
It is busy investing in FTTH networks across China’s biggest cities and had covered approximately 40 million households by the end of the first half.