Sunday, August 24, 2008

China Netcom Reaches 23.4 Million Broadband Users

China Netcom reported 1H08 revenue of RMB 41,125 million, which included upfront connection fees of RMB 505 million. Excluding upfront connection fees, revenue was RMB 40,620 million, representing a decrease of 0.15% over the same period of last year (unless otherwise specified, all reported data hereafter exclude the effect of upfront connection fees). Net profit was RMB 5,877 million, up 11.9% year on year because of the change in corporate tax rate and gain on non-cash transactions. If the impact of non-cash transactions was excluded, the net profit would be RMB5,420 million, up 3.2% year on year.

Some highlights from the report:

  • During the first half of the year, China Netcom integrated its resources for broadband services, ICT (information and communication technology), value-added service and advertising and media services in its push for transformation into a "broadband communications and multimedia services provider". The revenue generated from these businesses grew by 26.2% and accounted for 40.6% of total revenues, up 8.5 percentage points over the same period of last year.

  • In the first half of 2008, China Netcom reported a decline in total capital expenditure of 10.7% year-on-year to RMB 7,527 million. In particular, investment in the businesses of fixed-line and PHS only accounted for 4.4% of the total, down 13.2 percentage points compared to the same period last year.

  • As of June 30, 2008, broadband subscribers increased to 23,355,000. This represented a net growth of 3,587,000 when compared to the end of 2007.

  • China Netcom'S share of the broadband market in its service areas was 90.4%, up 1.5 percentage points year-on-year.

  • Revenue from broadband services was RMB 8,859 million, a year-on-year increase of 38.8%. Broadband services accounted for 21.8% of total revenues, up 6.1 percentage points over the same period of last year. ARPU was RMB 68.5. Revenue generated from broadband content and applications was RMB 1,270 million, up 69.1 % over the same period of last year, accounting for RMB 9.8 of broadband ARPU.

  • In the first half of 2008, ICT revenue grew by 28.5% year-on-year to RMB 1,882 million, and accounted for 4.6% of total revenue.

  • During the first half of 2008, China Netcom's traditional fixed-line service faced major challenges. The company is losing local access subscribers, leading to a decline in revenue from the traditional business. As of June 30, 2008, it had 108,510,000 local access subscribers, 2,310,000 less than at the end of 2007. Of this number, fixed-line subscribers declined by 1,499,000while PHS subscribers declined by 811,000.

  • To combat the continuous decline in subscribers of its fixed-line business and PHS, China Netcom's strategy for 2008 is to use high-quality and bundled services, reformed pricing mechanisms, and improved customer experience to promote customer loyalty and thus arrest the decline in subscribers. In May, 2008, the company launched a family gateway, which offers information services to "Family 1+" customers, combining simultaneous access to the internet through various PCs, wireless internet access, family video monitoring and IPTV services.

  • By the end of the first half of 2008, there were 9,971,000 "Family 1+" subscribers. Penetration rate among broadband subscribers for the "Family 1+" service was 36%.

Looking forward, Chairman Zuo Xunsheng said, "In the second half of 2008, we will increase investment in our innovative businesses, and step up effort to develop the innovative businesses, including the broadband services. We will continue the transformation of the "Family 1+" service in order to meet the demand of the household subscribers for high-quality multimedia services during informatization and to enhance the value of the fixed-line network. Meanwhile, we believe that the Company's merger with China Unicom will support and strengthen execution of these strategies. The merger will enable the new company to give full play to the competitive advantages of both predecessor companies, and bring the synergy of the mobile and fixed-line networks into play. The new company is also expected to have access to a 3G license. These will enable the new company to have an edge and to be better positioned in the domestic telecommunications market. The merger will increase shareholder value of both companies."