Move would help increase the company's population of 3G users

HONG KONG - China Telecom Corp Ltd plans to offer its 106 million subscribers Apple Inc's iPhone by the end of 2011, sources said on Wednesday.

The move would make it the second operator to do so in the world's largest mobile-phone market.

A China Telecom Corp Ltd booth at an expo in Beijing. The move to offer Apple' Inc's iPhone would make it the second operator to do so in the world's largest mobile-phone market. [Photo/China Daily]

The decision would also help China Telecom, the smallest of the country's three telecommunications operators, cement more high-end 3G users in a competitive market in which handset subsidies offered by carriers are squeezing margins.

China Telecom operates the nation's largest fixed-line network and is a relative newcomer to the mobile market.

"The reason telecom operators are fighting for the iPhone business is because everybody is trying to grab as many 3G users as possible," said Jane Wang, an analyst at the United Kingdom-based research firm Ovum.

"The only way to keep costs down is to build up such a user base."

China Telecom shares, which have risen by about a fifth this year, extended earlier gains after Reuters exclusively reported the plan, rising as much as 5.5 percent to an intraday high of HK$4.95 ($0.64) and outperforming the Hang Seng Index's 1 percent gain.

Separately on Wednesday, China Telecom said in a statement that Shang Bing, its president and chief operating officer, had resigned to become deputy minister of the Ministry of Industry and Information Technology.

China has 896 million mobile phone users - bigger than the entire population of Europe. Its three telecommunications operators are China Mobile Ltd, China Unicom Ltd and China Telecom.

So far, China Unicom is the only operator to offer the iPhone after signing a three-year agreement with Apple in 2009.

Its deal with Apple is not based on a revenue-sharing program, unlike some operators in other countries. For example, in the United States, Apple has a revenue-sharing agreement with AT&T Inc on iPhone sales.

"Unicom is selling iPhones, but there was no particular boost to their earnings from that," said Patrick Yiu, director at CASH Asset Management.

"Even if China Telecom gets the iPhone deal, it will still depend on whether their system can support it, and the details of the contract."

In May, China Telecom Chairman Wang Xiaochu told a news conference that the carrier had contacted Apple to launch the iPhone based on code division multiple access (CDMA) technology.

"It's expected to happen this year. China Telecom already has the required technology and it all hinges on the content of the agreement. As we all know, it's not easy to negotiate with Apple," a source close to the company, speaking on condition of anonymity, told Reuters.

China Telecom is expected to introduce the iPhone in November, said another source, declining to be identified because he was not authorized to speak to the media.

Officials with China Telecom declined to comment, while Apple officials were not immediately available for comment.

In June, a media report said bigger rival China Mobile could offer iPhones from September, although analysts said it was unlikely that Apple would support the carrier's time division synchronous code division multiple access technology.

A more likely scenario was for Apple to support China Mobile's 4G long-term evolution technology, which would only be available in late 2012 or in 2013, they said.

In that case, China Telecom would be the next to offer iPhones.

"Widening its user base by developing 3G is China Telecom's top priority," said Kevin Tian at Analysys International.

"However, its costs might be higher than China Unicom's and if it brings in the iPhone, its sales and marketing expenditure will not be low."

Reuters