Sept. 20 (Bloomberg) -- China Telecom Corp., the nation's biggest fixed-line telephone company, reported its first decline in subscribers after users defected to wireless carrier China Mobile Ltd.

Users fell by about 380,000 to 224.17 million at the end of August from a month earlier, the Beijing-based company said today. China Mobile, the world's biggest wireless carrier by users, added 5.59 million subscribers in August for a total of 343.6 million, it said in a separate release.

The loss reflects China Telecom's difficulties in boosting sales as consumers in the world's most populous nation cancel their phone lines to subscribe to mobile-phone services. Chairman Wang Xiaochu has expanded Web services to spur growth and plans to enter the mobile-phone market once high-speed licenses are issued.

``The turnaround for the fixed-line operators is in mobile operations, and they have been waiting for mobile licenses,'' said Marvin Lo, an analyst at Daiwa Institute of Research in Hong Kong. ``This is something that was going to happen, looking at the weak additions in July.''

China Telecom shares rose 0.2 percent to close at HK$4.67, while China Mobile's stock gained 1.5 percent to HK$112.70, a record. Shares of the mobile operator have risen 68 percent this year, compared with a 29 percent gain in the benchmark Hang Seng Index.

`Intensified Competition'

China Telecom in July added 60,000 customers, the smallest number since the company started reporting monthly numbers in January 2006.

The company today cited ``intensified market competition'' from mobile operators as the main reason for adding fewer users than last year, and also after it cut subsidies for some low- end users for its city-wide wireless service.

The fixed-line operator added 540,000 broadband Internet users in August. The company didn't give a year-earlier comparison. The company has added 5.02 million high-speed Internet users so far this year, for a total of 33.34 million, it said.

China Telecom last month reported second-quarter profit that missed analyst estimates after users signed up for cheaper rates at mobile carriers. Sales rose 3.8 percent to 44.30 billion yuan ($5.9 billion).

Second-quarter sales at China Mobile, also based in Beijing, rose 23.5 percent to 88.9 billion yuan, according to figures derived by subtracting first-quarter results from first-half earnings.

Shifting Focus

China won't reorganize the nation's telephone carriers or issue licenses for high-speed mobile services before next summer's Beijing Olympics, the Shanghai Securities News said on Sept. 12, citing an unnamed official with the State-owned Assets Supervision and Administration Commission's research center.

China Mobile has shifted its focus to smaller towns and villages where there is less competition. The company waived some charges to attract residents in the countryside, who account for three-quarters of China's 1.3 billion population.

China Mobile gained 42.3 million users in the first eight months of the year for a total of 343.6 million as of Aug. 31. China Telecom added 1.13 million users for its fixed-line service and its citywide Little Smart wireless service in the same period, today's statements show.

In 2006, China Telecom had net additions of 12.95 million, according to its Web site.

``We expect China Telecom will continue to see a decline in subscriber numbers for the rest of the year,'' said Daiwa's Lo. He rates China Telecom shares ``buy'' and China Mobile ``outperform.''

Of China Mobile's new net additions in August, 379,000 became contract users while 5.21 million took prepaid accounts.

Smaller rival China Unicom Ltd. yesterday said that it gained 1.43 million customers in August, less than the previous month.

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

Last Updated: September 20, 2007 04:35 EDT