iPhone subsidies hit China Telecom 1H net

Fiona Chau
23 Aug 2012

China Telecom said Wednesday its first half net profit fell 8.3% year-on-year to 8.814 billion yuan ($1.387 billion), as hefty subsidies on iPhone took their toll.

Revenues rose 14.8% on year to 138 billion yuan for the six month period ended June 30. EBITDA grew slightly by 0.3% on year to 48.760 billion yuan, while EBITDA margins stood at 38.5%.

The operator's mobile business showed a strong growth during the period, with revenue jumping 43.2% to 54.1 billion yuan from a year earlier. Wireline revenue, meanwhile, increased slightly by 1.8% to 83.9 billion yuan.

The slide in profit is largely due to an increased spending on marketing and subsidizing 3G smartphones to attract more mid- and high-end customers to its EVDO network.

The company, which is the smallest mobile carrier in China, launched an EVDO version of iPhone 4S in March. The launch formed part of the operator’s efforts to crack into the high-end segment, which is dominated by bigger rivals China Mobile and China Unicom.

As a result, spending on subsidizing 3G smartphones jumped 50.2% to 11.5 billion yuan from a year earlier, representing about 27.1% of the operator’s mobile revenue.

China Telecom chairman and chief executive Wang Xiaochu restated that the introduction of heavy subsidization on iPhone would put “a short-term pressure on profitability, but it would enhance long-term sustainable growth and value creation for the company.”

Wang said the company would allocate similar amount of budget on handset subsidies in the second half. Excluding the subsidization on the iPhone, China Telecom would maintain handset subsidy budget at a proportion of 23%-24% of the company’s mobile revenues, he told reporters at the company’s earnings conference.

While the introduction of iPhone helped China Telecom gained more 3G subscribers, 3G APRU, however, fell 1.4% to 74 yuan, while blended ARPU stood at 52.4 yuan, the same level from a year earlier. That compared to China Mobile’s 76 yuan (3G APRU) and 67 yuan (Blended APRU).

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