In March last year, China Telecom announced a net profit of 24.7 billion yuan (US$2.98 billion) for the 2003 fiscal year.

According to the company, its 2003 earnings were re-adjusted after deducting an asset revaluation deficit of 14.83 billion yuan (US$1.8 billion) and the related tax impact after the company purchased 10 provincial networks from its State-owned parent.

On an adjusted-basis (excluding earlier connection fee amortization which the company no longer charges), China Telecom's 2004 net profit totalled 19.57 billion (US$2.36 billion), or 0.25 yuan (3 US cents) per share.

China Telecom shares climbed 2.83 per cent to HK$2.725 yesterday.

"The year-end result is largely in line with our forecast and market consensus," said Goldman Sachs in a statement made available to China Daily yesterday.

"In the long run, we are most comfortable with China Telecom's fundamental outlook of becoming the largest integrated operator in China," it said.

Samuel Chua, an analyst with KGI Asia Ltd, agreed: "The year-end result is pretty good as the carrier is currently confined to conducting telecom business based on fixed-line networks.

"However, I expect the company to see comparatively slow growth this year as we don't see many new growth areas for the company and the industry may be restructured," he told China Daily in an interview.

According to him, the fixed-line business is unlikely to see explosive growth in 2005 as there is little market potential left in the country's developed areas.

Though the company has doubled its broadband users to 13.84 million this year, revenue from the broadband business is still quite a small proportion of the total, he said.

Also, after years of rapid expansion in the low-end wireless telephone service, "Little Smart" or personal handyphone system (PHS), a once major income generator, the firm is unlikely to maintain its high growth momentum in this area as it is expected to land mobile phone licences this year, Chua said.

China Telecom's PHS users rose 65 per cent to 42.2 million last year.

Company sources said new spending on PHS is only expected to reach 15 per cent of the company's total capital spending of 55.8 billion yuan (US$6.72 billion) this year, compared with 27 per cent in 2004.

To win approval to run mobile business is a must for China Telecom as it will be a key growth area for almost every telecom operator, Chua said.

In fact, both investors and companies are anticipating a reshuffle within the industry to curb ferocious competition in the market and pave the way for the introduction of 3G services.

It has been widely reported that the Chinese Government is likely to issue three 3G licences later this year to give the industry a strong shot in arm.

"I expect that China Telecom is very likely to receive one of the 3G licences," Chua said.

It has also been reported that China Telecom has already filed an application to regulators to purchase a mobile network from China Unicom to run mobile business.

"In that case, it will be very good for China Telecom to seek long term growth in the future," he said.

"We will try our utmost to get approval to deal in mobile business as soon as possible to better co-ordinate our fixed-line and mobile businesses," Wang Xiaochu, China Telecom Corp Ltd's board chairman, was quoted by Sina.com as saying yesterday.

(China Daily April 1, 2005)