Net profit rose to 28.02 billion yuan (HK$26.39 billion) in 2004, from 13.9 billion yuan in 2003, which was restated after deducting an asset revaluation deficit of 14.83 billion yuan and the related tax impact arising from the purchase of 10 provincial networks from its parent. The net profit beat the market estimate of 24.9 billion yuan from analysts polled by Bloomberg.

Excluding amortization of upfront connection fees and deducting an asset revaluation deficit of 1.26 billion yuan and related tax impact, the company's 2004 profit would have been 19.57 billion yuan.

``Broadband business will keep rapid growth, and is one of the earnings drivers this year,'' said chairman and chief executive Wang Xiaochu.

China Telecom's broadband subscribers increased by 6.61 million or 91.4 percent to 13.84 million last year, and Internet service accounted for almost 10 percent of its operating revenue. Wang said the planned 55.8 billion yuan capital expenditure this year will mainly be spent on transforming existing networks, including building a second Internet Protocol backbone.

After two years of fast growth, the company will this year scale back its Little Smart service, a personal handyphone system (PHS) that offers limited mobile service. Spending on PHS accounted for 27 percent of 2004's total 56.307 billion yuan capital expenditure, but the share will drop to 15 percent this year, Wang said.

``We'll focus on network quality enhancement to raise customer satisfaction rather than geographical expansion,'' he said. ``We'll try to increase network utilization and enhance revenue growth through the promotion of value-added services like SMS and ringtones.''

Although China Telecom's PHS users grew 65 percent to 42.2 million in 2004, average revenue per user per month, an industry gauge for profitability, fell from 42 yuan to 39.9 yuan. PHS network's utilization rate is a relatively low 66 percent.

China Telecom's cutback in PHS spending is widely seen as preparation for the development of a third-generation mobile network as it is a favorite candidate to obtain one of three 3G licenses the government will grant this year, analysts said.

China Telecom's total domestic phone subscribers, including fixed-line and PHS, reached 187 million in 2004, an increase of 25.66 million or 15.9 percent from a year earlier. Wang said five million subscribers were added in the first two months this year.

Given the maturing of the fixed-line market, Wang said the company plans to switch its strategy to an ``integrated information services provider'' and has also recently discussed plans to offer pay-TV services. carol.chan1@singtaonewscorp.com