China Netcom Group Corp. (Hong Kong) Ltd., the nation's second-largest operator of fixed-line phone services, said first-half profit rose on a one-time gain and an increase in high-speed Internet subscribers.
Net income climbed to 5.9 billion yuan ($777 million), from 5.8 billion yuan a year earlier, the Beijing-based company said today in a statement to the Hong Kong stock exchange. The company said it had a gain of 624 million yuan from selling assets to its parent. Sales rose 0.4 percent to 40.7 billion yuan.
Chairman Zhang Chunjiang expanded high-speed Web services and Internet television to attract users after growth in fixed-line subscribers slowed. Wireless operators signed up 10 times as many users as Netcom and bigger rival China Telecom Corp. in the first six months of the year after cutting prices.
Broadband is "the only road they can go down, with mobile- phone tariffs coming down to fixed-line levels," said Francis Cheung, head of Asian telecom research at CLSA Ltd. in Hong Kong. He rates the shares "underperform."
Six analysts in a Bloomberg survey had a median profit estimate of 5.6 billion yuan.
China gained 4.9 million fixed-line users in the first six months of the year, compared with 40.6 million mobile additions, according to government statistics. At the end of June, China had 372.7 million fixed-line customers and 501.7 million wireless- phone subscribers.
Broadband Strategy
The company is transforming into a "broadband and broadband- enabled services" provider because of "a drastic turn" in China's telecom industry because of mobile substitution, Zuo Xunsheng, the company's chief executive officer, said in the statement.
Revenue from broadband and Internet-related services in the first six months rose 33.8 percent to 6.6 billion yuan, Netcom said.
The telecom operator has teamed up with Shanghai Media Group, a Chinese state-owned broadcaster, to offer television services through the Internet to 150,000 subscribers in five cities in the northern regions including Harbin, Shenyang and Heilongjiang, Zuo said in June.
Connection Fees
China Netcom added 1.04 million fixed-line customers in the first six months for a total of 115.1 million, and gained 2.7 million broadband Internet users, bringing its total high-speed Web subscribers to 17.1 million. China is the world's largest Internet market after the U.S., with 162 million users at the end of June.
China's Netcom's profit including connection fees declined to 6.7 billion yuan, from a restated 7.1 billion yuan a year earlier. Sales fell to 41.5 billion yuan from a restated 41.8 billion yuan. Connection fees refer to the one-time charge of linking fixed-line users to the main network. In 2001, China stopped connection fees, which were amortized over 10 years.
In the first half, spending on equipment fell 16 percent from a year earlier to 8.5 billion yuan, the company said.
China Netcom shares rose 1.1 percent to HK$18.24 at the end of trading in Hong Kong, compared with a 2.8 percent gain in the benchmark Hang Seng Index.