China Telecom Posts Second-Straight Profit Gain on IPhone

China Telecom Corp. (728), the country’s third-biggest mobile phone operator by users, posted its second-straight gain in quarterly profit as subscribers with Apple Inc. (AAPL)’s iPhone helped boost data usage.

Net income rose 21 percent to 5.52 billion yuan ($902 million) in the second quarter, from 4.55 billion yuan a year earlier, the Beijing-based company said in a statement today. That beat the 5.25 billion-yuan average of five analyst estimates compiled by Bloomberg.

Chairman Wang Xiaochu is benefiting from an increase in users of third-generation mobile services and rising sales of data packages to download games and movies after introducing the iPhone last year. With 50 percent of its subscribers on 3G, China Telecom has surpassed both its larger rivals, China Mobile Ltd. (941) and China Unicom (Hong Kong) Ltd., by that measure.

“Profits are slightly higher than we expected,” Anand Ramachandran, a Hong Kong-based analyst at Barclays Plc., wrote in a report to clients today. Sales are boosted “as the proportion of higher average revenue per user 3G subscriber rises.”

Sales in the second quarter rose 14 percent to 79.7 billion yuan, the company said. That compares with the average of 80.7 billion yuan in the Bloomberg survey.

Photographer: Jerome Favre/Bloomberg

The China Telecom Corp. logo is displayed at a news conference in Hong Kong. Close

The China Telecom Corp. logo is displayed at a news conference in Hong Kong.

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Photographer: Jerome Favre/Bloomberg

The China Telecom Corp. logo is displayed at a news conference in Hong Kong.

3G Users

China Telecom rose 1.5 percent to HK$4.08 at 1:50 p.m. in Hong Kong trading. The stock has dropped 5.3 percent this year, compared with a 3.8 percent decline in the benchmark Hang Seng Index.

China Telecom last year said the iPhone would help it achieve long-term sustainable growth even as it caused “short-term pressure” on profitability. The company reported three straight declines in net income until last quarter, when it resumed growth.

In the second quarter, the company’s mobile unit added 9.26 million 3G users, bringing it to 87.3 million. That represents half of its total wireless subscriber base of 174.5 million. China Telecom ranks behind China Mobile and China Unicom in wireless users.

China Mobile, the world’s biggest wireless carrier with 740 million subscribers, has 19 percent of its customers on 3G. About 38 percent of China Unicom’s 262 million users are on the faster network, according to data the carriers released last month.

“As the 3G subscribers offer higher average revenue per user, the quality of customers is better for China Telecom,” Ricky Lai, an analyst at Guotai Junan International Holdings Ltd. in Hong Kong, said in a phone interview yesterday.

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Wang Xiaochu, chairman and chief executive officer of China Telecom Corp., center. Close

Wang Xiaochu, chairman and chief executive officer of China Telecom Corp., center.

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Photographer: Jerome Favre/Bloomberg

Wang Xiaochu, chairman and chief executive officer of China Telecom Corp., center.

China Telecom entered the wireless market in 2008 by acquiring the smaller of China Unicom’s two mobile divisions in a government-led revamp of the nation’s mobile-phone industry.

China Mobile this month posted a 2.5 percent rise in second-quarter profit as costs to add new subscribers to its third-generation network restrained growth. China Unicom posted posted a 41 percent jump in net income for the period. Both sets of results exceeded analyst estimates.

To contact Bloomberg News staff for this story: Edmond Lococo in Beijing at elococo@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

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