China Telecom Corp., the nation's biggest fixed-line phone company, said first-half profit fell as wireless carriers including China Mobile Ltd. attracted users by cutting prices.

Net income declined 4 percent to 11.6 billion yuan ($1.7 billion), the Beijing-based company said today, without providing comparative figures. The profit, which excluded gains from connection fees, compares with the 12 billion yuan median estimate of five analysts in a Bloomberg survey.

Lower call charges by China Mobile and China Unicom Ltd. prompted the nation's consumers to switch to wireless services at a faster pace. China Telecom and its parent plan to spend $16 billion on acquisitions this year to enter the mobile-phone market under a government-mandated revamp of the domestic telecommunications industry to boost competition.

``Demand for fixed lines weakened quite markedly this year,'' Victor Yip, who rates China Telecom shares ``hold'' at UOB Kay Hian Ltd. in Hong Kong, said before the announcement. ``The company is pinning its hopes on the mobile-phone market to re-ignite growth in voice sales.''

Fixed-line revenue dropped 12 percent in the first six months, in which China Telecom lost 5.4 million phone users, the company said in a statement to the Hong Kong stock exchange. Telecom lost a further 600,000 users in July, the 12th straight monthly decline, taking its total to 214.3 million. China Telecom's fixed-line revenue fell 5.6 percent in 2007.

Sales Rose

Overall sales rose 1.5 percent to 89.4 billion yuan, helped by higher broadband Internet revenue. Connection fees refer to one-time charges paid by customers to subscribe to fixed-line services. The charges, which were stopped in 2001, are being amortized over 10 years by fixed-line companies.

China Telecom fell 4.7 percent to HK$3.90 at the midday break in Hong Kong trading, before the earnings announcement, extending the stock's decline to 37 percent this year.

In February, the government asked China Mobile and China Unicom to cut charges of long-distance domestic calls on mobile phones by as much as 50 percent.

The reductions may have contributed to a 20 percent decline in inter-region call volumes for fixed-line phone carriers in the second quarter, UBS AG analyst Wang Jinjin wrote in an Aug. 8 report, citing industry data. The drop compared with a 6 percent increase for 2007, according to Wang.

User Additions

China Netcom Group Corp., the nation's second-biggest fixed-line carrier, said Aug. 25 that sales of voice services declined 13 percent. China Mobile, the biggest wireless carrier, increased second-quarter profit 51 percent to 30.8 billion yuan after adding more customers.

In June, China Telecom agreed to buy China Unicom's code- division multiple access, CDMA, mobile-phone operations for 43.8 billion yuan. Parent China Telecommunications Corp. will pay 66.2 billion yuan to acquire the CDMA network infrastructure. The transactions are part of a government plan to merge smaller carriers to create entities that offer both fixed-line and mobile-phone services.

Sales of broadband Internet connections rose 31 percent to 19.5 billion yuan in the first half, China Telecom said. The company gained 2.24 million broadband Internet users in the second quarter, 9 percent more than additions in the previous months. It added a further 810,000 subscribers last month for a total of 40.8 million at the end of July.

China passed the U.S. to become the world's biggest Internet market, with 253 million Web users at the end of June, according to the state-backed China Network Information Center, which licenses online domain names. The Asian nation may have 406 million Web users by 2010, more than the total population of the U.S., Credit Suisse Group AG estimates.

source:Bloomberg