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China Telecom sees profits squeezed by iPhone costs

China Telecom has reported a fall in full-year net profit, despite healthy growth in revenues, due to increased spending on iPhone marketing as it tries to capture higher-value customers at the expense of its bigger rivals.

The operator – which runs China’s largest fixed-line network but is number three in the mobile market – saw net profit decline by 9.5% in 2012, to RMB14.9 billion ($2.4 billion), compared with 2011, while its revenues grew by 15.5%, to RMB283 billion.

China Telecom (Beijing, China) heralded 2012 as the “best year ever for the company’s development of full services operations” and said that spending on marketing initiatives associated with the iPhone, which it began to offer to its customers earlier this year, would “significantly enhance the long-term sustainable growth and value creation of the company despite the short-term pressure on its profitability”.

The operator acquired its mobile division from China Unicom (Beijing, China) – the country’s second-biggest mobile operator, behind China Mobile (Beijing, China) – during a restructuring of the sector instigated by authorities in 2008.

With 161 million mobile customers in total, China Telecom claims to serve 15% of the market but hold a 30% share of 3G subscribers, who accounted for more than 40% of its customer base last year.

Analysts had expected smartphone subsidies to have a depressing effect on China Telecom’s bottom line but have expressed optimism that its net profit will increase in the coming quarters as a growing number of customers adopt pricier mobile data services.

China Telecom says that mobile service revenues rose by 36% in 2012, to RMB92.8 billion – the highest growth rate in the industry.

At its fixed-line business, the operator says it worked to expand fiber broadband coverage and grew internet access revenues by 10%, to RMB67.8 billion.

The company signed up another 13.31 million broadband customers in 2012 to give it 90 million in total.

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