China Telecom Corp. posted an 8.2% drop in first-half net profit as its users continued to migrate to mobile-service providers.

China Telecom Chief Executive Wang Xiaochu said he expects the company's earnings to remain under pressure in the short term as its fixed-line subscriber base continues to shrink and its foray into mobile services requires significant investment.

The company, which is listed in Hong Kong and New York, reported a net profit of 12.63 billion yuan (US$1.85 billion), down from 13.76 billion yuan a year earlier.

Revenue edged up to 90.43 billion yuan from 89.76 billion yuan.

Mr. Wang reiterated that China Telecom's goal is for the mobile business it is acquiring from China Unicom Ltd. to be profitable by 2010. He said the high costs involved in developing the business will lead the mobile operation to post a loss this year and next.

China Telecom, the country's biggest fixed-line operator by subscribers, is paying 43.8 billion yuan for China Unicom's code-division-multiple-access operation as part of a restructuring of China's telecommunications industry that was unveiled in May.

The revamp involves merging six of the country's state-owned mobile phone and fixed-line operators into three nationwide carriers that offer fixed-line and wireless services, instead of dividing coverage in terms of region or type of service.

Mr. Wang also said China Telecom would be able to start offering third-generation mobile services in 80 cities across China one month after it gets a third-generation license from the government.

China's telecom regulator said in late May it will issue three 3G licenses after the industry restructuring is completed. China Mobile Ltd. and China Unicom are also expected to receive 3G licenses.

China Telecom said its voice revenue in the first half dropped 12% to 50.51 billion yuan from 57.24 billion yuan a year earlier.

As of June 30, its fixed-line subscribers totaled 214.89 million, down from 224.49 million a year earlier as its customers continue to switch to mobile services.

It said broadband and data services have become its new revenue drivers, with revenue from these businesses rising 27% to 24.53 billion yuan from 19.28 billion yuan a year earlier.

source:THE WALL STREET JOURNAL