China Telecom Corp, the country's biggest fixed-line carrier, posted fourth-quarter profit that rose 42 percent yet missed analyst estimates. The shortfall resulted from rising costs to add subscribers at the company's mobile-phone unit.

Profit excluding gains from connection fees rose to 2.67 billion yuan ($407 million) in the three months ended Dec 31, from 1.88 billion yuan a year earlier, the Beijing-based company said in a statement on Tuesday. That compares with the 3.06 billion yuan average of nine analysts' estimates compiled by Bloomberg.

China Telecom boosted mobile-subscriber numbers 61 percent last year by using handset subsidies and promotional calling rates to grab share from the market leaders China Mobile Ltd and China Unicom (Hong Kong) Ltd. Those costs are slowing profit growth even as the company battles to stem customer losses at the its fixed-line phone business.

Sales in the fourth quarter rose 5.1 percent to 56.2 billion yuan, from 53.5 billion yuan. That compares with the 59.9 billion-yuan average of nine analysts' estimates.

China Telecom's shares rose 2.7 percent to HK$4.51 (58 cents) at the midday break in Hong Kong trading, prior to the announcement. The stock has gained 11 percent this year compared with a 1.3 percent decline in the benchmark Hang Seng Index.

The number of mobile subscribers increased to 90.5 million at the end of December, from 56.1 million a year earlier, China Telecom said in January. The company ranks third in wireless users in the country, behind China Mobile and China Unicom.

China Telecom entered the wireless market in 2008 by acquiring the smaller of China Unicom's two mobile divisions in a government-led revamp of the domestic mobile-phone industry.

China Telecom spent 6.1 billion yuan on handset subsidies in the first half of 2010, or about 27 percent of the wireless division's revenue, the company said in August. The proportion will be lower than 30 percent for the full year, according to the company.

On March 16, China Mobile, the world's biggest phone carrier by user numbers, reported that fourth-quarter net income rose 3.7 percent to 32.4 billion yuan, beating analysts' estimates. China Unicom is scheduled to announce its results on March 29.