1. How was the Company's operating performance for the first quarter of 2019?
For the first quarter of 2019, the overall operation of the Company has progressed steadily. The operating revenues were RMB96,135 million, representing a decrease of 0.5% over the same period of last year, which was mainly attributable to the significant decline of 48.5% in sales of terminals compared to the same period of last year; of which the service revenues were RMB91,531 million, representing an increase of 4.1% over the same period of last year. The operating expenses decreased by 1.1% over the same period of last year; of which the depreciation and amortisation expenses increased by 17.8% over the same period of last year. If excluding the impact of the Lease Standard*, the growth rate in depreciation and amortisation expenses was lower than the growth rate in service revenues. The network operations and support expenses decreased by 8.3% over the same period of last year. If excluding the impact of the Lease Standard*, the network operations and support expenses increased compared to the same period of last year while the growth rate decreased compared to the same period of last year. The selling, general and administrative expenses increased by 5.5% over the same period of last year which was mainly due to the Company's appropriate deployment of sales initiatives resources to firmly seize the prime opportunities for scale development and maintain market competitiveness. The personnel expenses increased by 6.7% over the same period of last year which was mainly attributable to the increased incentives titled towards frontline employees as well as emerging businesses and technical talents. Other operating expenses decreased by 33.8% over the same period of last year which was mainly due to the increase in mobile terminals sold through open channels and the reduction in terminals sold through our own channels. During the period, the net finance costs increased by 25.4% over the same period of last year. If excluding the impact of the Lease Standard*, the net finance costs reduced compared to the same period of last year. The investment income and share of profits of associates increased by 46.1% over the same period of last year which was mainly due to the increase in share of profit of China Tower Corporation Limited for the period. The profit attributable to equity holders of the Company was RMB5,956 million, representing an increase of 4.5% over the same period of last year. EBITDA was RMB30,238 million, representing an increase of 14.1% over the same period of last year. EBITDA margin (calculated based on EBITDA divided by service revenues) was 33.0%.
* In accordance with the requirements of International Financial Reporting Standards ("IFRSs"), the Company has implemented IFRS 16, "Leases" ("Lease Standard") since 1 January 2019. The Company has selected the modified retrospective approach for the application of the Lease Standard and recognised the cumulative effect of initial application to opening reserves without restating comparative information. The adoption of the Lease Standard caused certain arrangements originally regarded as operating leases to be recognised in the consolidated statement of financial position, which correspondingly increased the assets and liabilities of the Company and the asset-to-liability ratio. Meanwhile, the cost structure has undergone relatively large changes. Certain expenditures originally recorded as lease charges were converted into depreciation and amortisation expenses of the right-of-use assets and finance costs. The implementation of the Lease Standard has certain impact on the Company's profit in the early stage, but the total profit throughout the entire lease period remains unchanged.
2. How was the Company's mobile service performance?
For the first quarter of 2019, facing fierce market competitive environment, the Company firmly grasped the development opportunities arising from the digital economy and carried out supply-side structural reforms. With all-rounded convergence upgrades, the Company rapidly expanded its ecosystem and persistently explored market to promote corporate high-quality development. The number of mobile subscribers reached approximately 315 million, representing a net addition of 12.05 million; of which the number of 4G users reached approximately 256 million, representing a net addition of 13.67 million.
3. How was the Company's data traffic operation?
For the first quarter of 2019, the handset data traffic increased by 140% over the same period of last year. The monthly average data traffic per 4G user reached nearly 7GB.
4. How was the Company's wireline service performance?
For the first quarter of 2019, the net addition of wireline broadband subscribers was 2.08 million, reaching a total of approximately 148 million. The number of e-Surfing HD subscribers reached approximately 109 million.
5. What were the new impetus of the Company's revenue?
The revenues from the Company's Intelligent Applications ecospheres (included ecospheres of Smart Family, DICT, IoT and Internet Finance) grew rapidly, accounting for nearly 20% of the service revenues and its contribution to incremental service revenues significantly increased. With full promotion of "cloudification" (refers to the comprehensive upgrade of services and network to cloud in terms of infrastructure, products service capabilities and sales mode, with a focus on cloud computing) on all fronts, revenues from cloud services increased by 99.5% over the same period of last year while cloud-network integration has driven the accelerated development of the DICT services (converged smart application service integrating three technologies, namely communications technology, information technology and cloud & Big Data technology).
6. What was the dividend of the Company for 2018?
Taking shareholder returns into consideration, alongside the Company's profitability, cash flow level and capital requirement for future development, the Board of Directors has decided to recommend at the forthcoming shareholders' meeting that a final dividend equivalent to HK$0.125 per share for the year 2018 to be declared, representing an 8.7% increase over the year 2017. Going forward, the Company will continue to create shareholder value, while fully balancing the cash flow required for the long-term development of the Company with returns to shareholders.
7. What is the Company's CAPEX plan?
2018 full year CAPEX budget remains unchanged at RMB75 billion. In the first half of 2018, CAPEX was RMB32.9 billion, representing a decrease of 19.9% with persistent and appropriate control.
8. How was China Telecom's network upgrade?
Focusing on user experience, business scale expansion and value management, the Company pushed forward the construction and intelligent upgrade of its network to build up comprehensive network advantages. Leveraging big data analysis, we deployed dynamic capacity expansion of 4G network with precision, and further optimised in-depth coverage at key locations. The number of 4G base stations reached 1.38 million, effectively supporting the upgrade to VoLTE high definition voice, as well as the continuous growth of large data traffic business. Our fibre network now fully covers all cities and towns in the service area of the Company, enabling a leading customer experience. By leading the deployment of Gigabit fibre broadband, we established a new edge in broadband network. We continued to enhance our NB-IoT network, and built a whole-range speed rate IoT structure, which combines high, medium and low speeds, supporting further expansion in vertical industries. By pushing forward cloud-network integration at full throttle, we continued to optimise our nationwide deployment of cloud resources and backbone network coverage, resulting in the establishment of a cloud-led network. By introducing new technologies such as Software-Defined Networking (SDN) and Network Functions Virtualisation (NFV), the Company accelerated the re-constitution of its networks, and rolled out scale promotion of intelligent self-selecting bandwidth network products for government and enterprise customers as well as home gateway products based on SDN technology, which allows our network products to be activated within minutes. We also launched a VoLTE virtual IP Multimedia Subsystem (vIMS) core network with software and hardware decoupling, facilitating the progress of cloudification and virtualisation. This significantly strengthened our competitiveness and differentiation in the cloud market, while laying a foundation for 5G network cloudification in the future.
9. What was China Telecom's plan on 5G?
The Company proactively contributed to the formulation of international standards for 5G technologies and conducted large-scale network trial runs in a number of locations. We achieved some preliminary progress in areas such as voice call, 4G/5G interoperability, and interoperability between equipment, among others. By supporting the Ultra HD Live broadcast for CCTV's 2019 Spring Festival Evening Gala with "5G+4K" and "5G+VR" solutions, we took an important step towards the successful accomplishment of enhanced mobile broadband (eMBB) application scenarios. The Company also actively explored applications for other vertical industries, such as 5G autonomous driving bus, smart water treatment and mobile remote medical service.
In 2018, we built more than 1,000 BTS in 17 cities to conduct trials in technology and applications, while also explored different business models proactively, so as to seize the imminent 5G opportunities. In 2019, the 5G CAPEX is budgeted at about RMB9 billion. We consider SA as our direction and goal, and will promote industry chain maturity and will conduct NSA and SA scale trials concurrently in early stage. We will adjust our investment plans, expand trial scale promptly subject to technology maturity, licensing, competition landscape and trial results, and will communicate with the market in a timely manner. We will also proactively explore 5G co-building and co-sharing to reduce construction and maintenance cost.
As the next generation infrastructure, 5G network will become ever more intertwined with applications and telecom operators will play an increasingly pivotal role in the information communications industry. The Company will actively explore commercial applications of various new technologies, accelerate the development of operation mechanisms that are adapted for 5G, and capitalise on its advantages to promote ecological services ahead of time. Recently, China Telecom was awarded the 3.5GHz band to conduct nationwide 5G network trials. Leveraging the advantages of the 5G mainstream frequency band and insisting on open cooperation, we will accelerate 5G deployment proactively and pragmatically. Persisting in a market-oriented and demand-driven approach, we will appropriately manage the momentum, propel the development of non-standalone (NSA) and standalone (SA) concurrently, and progressively expand the scale of network trials and the pilot project of 2B/2C applications.
10. What was the progress of "Speed Upgrade and Tariff Reduction"?
In 2018, the Company continued to implement the "Speed Upgrade and Tariff Reduction" policy, by cancelling data roaming fees as of 1st July 2018, which benefited our customers and propelled the upgrade of information consumption and industrial digitalisation.
updated 7th May, 2019
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