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China Telecom wins OK on web cafes

China Telecom wins OK on web cafes

China's top fixed-line phone company, China Telecom Corp, has won approval to open a nationwide chain of Internet cafes, leveraging a fast-expanding broadband network to try to generate new growth.

A company spokesman on Monday said China Telecom had won a license to operate the chain, but did not supply any details on how many outlets it plans nor what sort of business model it might employ.

Analysts said the cafes could provide incremental boosts to revenue and profits for the company, but were unlikely to rival contributions from its core, but maturing, fixed-line service.

"Of course it's going to help boost the broadband subscriber base, not on an individual basis, but you could get more corporate clients," said BNP Paribas analyst Marvin Lo, referring referring to the prospect for franchising.

Kim Eng Securities analyst Edward Fung said the new business would not trigger significant revisions to his earnings estimates, but added it could eventually provide a single-digit percentage enhancement to the company's bottom line.

"To be frank, we need to look at the structure of the whole thing before we can put a full stop to it," he said.

Mobile carrier China Unicom Ltd. kicked off an Internet cafe initiative in mid-2003, saying it would set up a chain of owned- and franchised shops.

As of the middle of last year, the chain, called Unicom Plaza, operated 367 stores across the country, according to a company report.

Internet cafes are popular in China, attracting mostly males in their teens and early 20s who lack computers at home and use the cafes' high-speed broadband connections to play Internet-based video games.

China Telecom and its chief fixed-line rival, China Netcom Group Corp., have aggressively built out their broadband networks over the last few years, spending an estimated $2.4 billion to upgrade their systems.

Both are looking for new revenue sources as growth in China's maturing telecoms market -- the world's biggest with 316 million fixed-line and 340 million mobile users at the end of January.

But despite intensive spending on broadband, the service is estimated to have drawn only 42.8 million users by the end of last year, according to official data.

Both companies have recently discussed using their broadband networks to offer pay TV services in China, but analysts have said they could be hamstrung by a lack of compelling content.


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