April 21 (Bloomberg) -- China Telecom Corp., the nation's biggest fixed-line telephone company, reported first-quarter profit growth stalled as customers migrated to mobile rivals offering reduced rates.

Net income rose to 6.25 billion yuan ($893 million) from a restated 6.22 billion yuan a year earlier, the Beijing-based company said today in a statement to the Hong Kong stock exchange. Sales increased 1.6 percent to 43.6 billion yuan.

China Telecom and China Netcom Group Corp. have lost phone users for at least eight straight months as more people sign up for cheaper mobile services that allow them to send text messages and download from the Internet. Chairman Wang Xiaochu, who has applied for a license to start wireless operations, countered the loss in phone subscribers by attracting Internet customers.

``The two fixed-line operators will continue to lose users because of mobile substitution,'' Allan Ng, an analyst at BOC International (Holdings) Ltd. in Hong Kong, said. Ng rates China Telecom ``underperform'' with a share-price estimate of HK$6.30.

The company's phone users declined by 920,000 in March, taking the first-quarter loss to 3.2 million, the statement said. It had a total of 217.2 million fixed-line customers at the end of March.

China Telecom added 730,000 broadband subscribers last month, increasing the total to 37.7 million, it said. In the first quarter, the company gained 2.1 million high-speed Internet users.

Control in China

Shares of China Telecom, which controls 60 percent of the nation's fixed-line phone market, rose 1.8 percent to HK$5.13 as of 3:53 p.m. in Hong Kong. The stock has lost 17 percent this year, compared with an 11 percent drop for the city's benchmark Hang Seng Index.

The company's first-quarter margin for earnings before interest, tax, depreciation and amortization fell to 51.9 percent from 52.6 percent.

Smaller rival Netcom earlier today reported first-quarter sales rose 0.9 percent to 20.2 billion yuan after adding more Internet users. The company doesn't report quarterly profit.

Netcom lost 1.7 million fixed-line users in the first quarter and added 1.9 million high-speed Internet users. Its shares rose 1.8 percent to HK$22.90 in Hong Kong trading.

China, the world's biggest mobile market by users, had 565.2 million wireless-phone subscribers at the end of February, compared with 362.2 million fixed-line customers.

Industry Overhaul

As part of an industry overhaul, the government may order China Unicom Ltd., the nation's second-largest mobile operator, to sell its bigger phone network to Netcom, analysts at UBS AG, Morgan Stanley and Goldman Sachs Group Inc. said last month.

Unicom may sell its smaller network to China Telecom, while the parent of China Mobile may acquire fixed-line operator China Tietong Telecommunications Corp., according to the analysts.

China hasn't said when it will grant third-generation wireless services or disclosed how many it will issue. The 3G services allow faster downloads of music and video on to handsets.

To contact the reporter on this story: Janet Ong in Beijing at jong3@bloomberg.net

Last Updated: April 21, 2008 04:17 EDT