Get your last looks at the China Telecom
Look at results for the first half and you'll see why I say that. Revenue was up 6% and profits were up only about 8% for the period -- and that's excluding the soon-to-be discontinued interconnection fees. Had those fees been included in both periods, profit would have been almost flat.
To be clear, I don't think China Telecom executives are doing a bad job. Rather, they are just facing the inevitable decline of fixed-line telephony as a profit center -- something other carriers like Philippine Long Distance
Looking ahead, China Telecom wants to get into the mobile phone game in a big way, but it has not yet secured a 3G license. (There will be only three.) Even if the company cannot get one, the general expectation is that it will buy someone that does -- perhaps China Unicom
In any case, management is already preparing for the expense of building out a 3G network in the eastern cities of China -- a target area, given that most of China's wealth and prosperity is concentrated on the eastern coast. The board has decided not to pay an interim dividend so as to conserve financial resources, and the company is already talking about issuing more than $1 billion in debt to pay for the build-out.
That China Telecom is likely to take on the risks, expense, and benefits of a 3G network makes valuation a bit trickier. And that's to say nothing of the risks of competing against the likes of China Mobile
For more Foolish Chinese Take-outs:
- Sinopec Feels the Squeeze
- Grounded in China
- China Unicom's Financial Hangups
- China Mobile Still on the Move
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).