UPDATE 2-China Telecom books record revenue on rapid mobile sales growth

Wed Mar 19, 2014 5:04am EDT

* Profit rises 18.7 pct to 17.5 bln yuan in Q4; up 17.4 pct in 2013

* Q4 operating revenue rises 13.9 pct to record 83.4 bln yuan

* Mobile revenue rises 28.3 pct, driving record sales

* Subscriber numbers fall by 800,000 in January

* 2014 capex almost flat on year at 80 bln yuan (Adds capex, handset subsidies, marketing spend)

By Paul Carsten and Yimou Lee

BEIJING/HONG KONG, March 19 (Reuters) - China Telecom Corp Ltd, the smallest of China's three mobile phone network operators, reported an 18.7 percent rise in fourth-quarter profit after rapid mobile sales growth pushed quarterly revenue to a record high.

China Telecom has more than half of subscribers signed up to third-generation network contracts rather than the less lucrative 2G contracts, a proportion higher than both China Mobile Ltd and China Unicom Hong Kong Ltd.

Its 3G network is based on an international standard and has typically trumped that of dominant carrier China Mobile where persistent quality issues has caused subscribers to defect, and prompted 2G users to opt for China Telecom when upgrading.

In October-December, China Telecom reported a 13.9 percent rise in revenue at 83.4 billion yuan ($13.47 billion), according to Reuters calculations based on full-year earnings which met analyst estimates. That helped profit reach 2.8 billion yuan.

"The mobile Internet business in China has undergone an explosive growth momentum," Chief Executive Wang Xiaochu said in an earnings statement on Wednesday.

"Coupled with the accelerated evolution of technology and industry chain, there is a rapid upgrade in...data usage habits."

For all of 2013, profit rose 17.4 percent to 17.5 billion yuan - the highest in six years - compared with a 17.6 billion yuan SmartEstimate of 32 analysts surveyed by Thomson Reuters. Revenue reached an all-time high of 321.6 billion yuan.

Shares of China Telecom were down 1.3 percent around 0611 GMT after the release, versus a 0.2 percent fall in the benchmark Hang Seng Index.

SPENDING ON SPEED

China Telecom has spent heavily on a 4G network which it launched last month before obtaining a licence for its preferred 4G technology, to keep pace with China Mobile. China Unicom launched a 4G network on Tuesday.

For 2014, China Telecom set capital expenditure at 80.3 billion yuan from 79.992 billion yuan in 2013. Of the total, the company will spend over half to improve its mobile network, rather than a third last year.

A large chunk will go on 4G - which will get an extra 20 billion yuan from last year - to increase coverage and quality, China Telecom said at a news conference in Hong Kong after the earnings release.

That will include raising the number of 4G base stations to 80,000 this year from 60,000.

The remaining capex budget will be spent in other areas including broadband and Internet services.

UPGRADING

China Telecom, which also offers fixed lines, accounted for less than 15 percent of the country's 1.24 billion mobile users in January.

For 2013, revenue from its mobile arm jumped 28.3 percent to 151.2 billion yuan, accounting for almost a half of overall revenue.

Last year in particular saw an increase in users shifting from 2G contracts to the more expensive 3G, said Chris Lane, a Hong Kong-based analyst with Sanford C. Bernstein.

"That strong momentum is really what contributed to strong growth in mobile over the year, as people migrate from 2G and 3G," said Lane.

Monthly growth of users signing up to 3G contracts peaked at 4.27 percent in March last year, but almost flat-lined in January when total subscribers fell by 800,000 from December.

"If they (China Telecom) don't start to up their game, and the growth momentum they had through last year has basically evaporated, they're going to have a much, much more difficult year this year," said Lane.

January was the month China Mobile began selling Apple Inc's iPhones. The carrier - the biggest in the world by subscribers - also launched a 4G network in December.

Even so, China Telecom will keep its annual marketing spend at 3 billion yuan this year, and handset subsidies similar to last year's 22.8 billion yuan, executives said at the news briefing. ($1 = 6.1920 Chinese Yuan) (Editing by Christopher Cushing)

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