China Telecom buys Beijing Telecom

Customers in China are switching to mobile services under increasing fixed-mobile substitution

China Telecom, China's largest fixed-line phone provider, has announced plans to buy regional phone operator Beijing Telecom for $793m.

The government-controlled former monopoly, which still owns about 70 per cent of China's fixed telephone lines, has struggled to cope with a rapidly evolving market and competition from mobile phone operators.

"Due to intensifying mobile substitution, China Telecom experienced negative growth in access lines in service for the first time [in 2007], and voice business revenue decreased by 7.9 per cent from 2006," the company said in a statement.

Charice Wang, an analyst at research firm Ovum, explained that China Telecom has been facing strong competition from China Mobile as customers switch to mobile services under increasing fixed-mobile substitution.

"China Telecom's traditional voice business has been [declining in] recent years," she said.

"In its annual report for 2007, China Telecom's fixed voice subscribers fell 2.71 million to 220 million, and net profit was $3.20bn, a year-on-year increase of just 1.1 per cent."

The move represents a reintegration of divisions at the former state-run phone monopoly.

"It is a good move for China Telecom to boost its bottom line and enlarge its service coverage via the internal integration," said Wang.

"It is not a new strategy for China Telecom to absorb the good performance arms of its state-owned parent, China Telecom Group.

"Back in 2003 and 2004, it acquired six and 10 provincial arms respectively to achieve coverage of [the whole of] South China."