UPDATE 2-China Telecom Q4 net slumps 37 pct, lags forecast

(Adds details, analyst quote)

by Vinicy Chan and Sophie Taylor

HONG KONG/SHANGHAI March 31 (Reuters) - China Telecom Corp Ltd (0728.HK), the larger of the country's two fixed-line operators, posted a 37 percent fall in its quarterly profit on Monday, as China consumers increasingly turn to mobile phones over fixed-line telephones.

China has long said that it intends to restructure its telecoms sector and award licences for 3G mobile services, which will unleash billions of dollars in equipment contracts for suppliers such as Nokia Oyj (NOK1V.HE) and Motorola Inc MOT.N.

The prospects for fixed-line companies China Telecom (CHA.N) and smaller rival China Netcom Group Corp (Hong Kong) (0906.HK), which are struggling against a slowdown in traditional fixed-line voice services, hinge heavily on the expected restructuring.

A sector reshuffle is expected to grant the fixed-line players a foothold in the high-growth mobile market, although some analysts expect 3G and the restructuring to be delayed until at least the second half of this year.

"The results were lacklustre. What we liked was the fact that the non-voice business has seen some encouraging growth and that's likely to become a core revenue," said Glenda Yu, analyst at Cazenove.

China Telecom and Netcom have been turning to non-voice services such as data and Internet broadband to drive growth as voice revenues flag.

Executives told reporters on Monday that Telecom expects revenue from services excluding its traditional phone business to rise to half of overall turnover in two years, up from about 36.5 percent now.

The company had not yet received official notice on when restructuring might begin, Chief Executive Wang Xiaochu told reporters.

"It would probably take three to four months from the time of the government announcement on restructuring to its completion," Wang said.

DIALING DOWN

China Telecom posted fourth-quarter net profit, including the amortisation of upfront connection fees, of 6.44 billion yuan ($918.2 million), compared with 10.19 billion yuan a year earlier, based on Reuters calculations from full-year and previously released nine-month figures.

The result lagged a forecast of 7 billion yuan, according to the average estimate of 25 analysts polled by Reuters Estimates.

China Telecom's stock closed down 4.7 percent at HK$4.88 on Monday after the results were announced. The stock rose 5.8 percent in the fourth quarter, outperforming a 2.5 percent rise in the benchmark Hang Seng Index .HSI

China Telecom said it had written off around 572 million yuan of assets as a result of severe snowstorms in southern and eastern China in January and February, and expected an extra 960 million yuan of capital expenditure would be required.

(For details, please double click here 0331131.pdf). The company also said it had agreed to pay 5.56 billion yuan for Beijing Telecom, a subsidiary of its state parent.

The listed company (CHA.N) said the acquisition would allow it to enhance its overall competitiveness while, crucially, benefiting from increased telecoms demand during the Beijing Olympic Games, which kick off this August.

China Telecom posted a full-year net profit of 23.7 billion yuan, compared with a slightly revised 27.24 billion yuan a year earlier. That result lagged a forecast for 24.26 billion yuan, according to Reuters Estimates.

China Netcom posted a smaller-than-expected 6.7 percent fall in 2007 net profit earlier this month.

China Telecom's full-year operating revenue grew 1.7 percent to 178.66 billion yuan, compared with a restated 175.62 billion yuan a year earlier.