By Gerry Shih
BEIJING (Reuters) - China Telecom Corp Ltd reported a lower-than-expected profit of 17.68 billion yuan (2 billion pounds) in 2014, roughly unchanged from a year earlier, as the smallest of the country's three carriers struggled with the effects of a new value-added tax (VAT) imposed this year.
China had imposed a flat 3 percent business tax on carriers until a value-added tax, levied at between 6 percent and 11 percent for various services, was enforced from June 1.
Chairman Wang Xiaochu said in a statement on Wednesday the carrier "rose to the challenge" of changing market conditions, including the VAT imposed in the middle of last year, by improving the sales of its expensive 3G and 4G services and delivering relatively stable results.
The company, which was granted a full licence to operate a nationwide, high-speed 4G network this month, has set an ambitious target of acquiring 100 million 4G customers this year as it seeks to catch up with China Mobile in the high-speed mobile market.
Like China Mobile and China Unicom, Telecom is betting on increased mobile data use and the more expensive 3G and 4G services to offset shrinking call and text messaging revenues, which are hurting from the rise of Internet-based messaging apps.
Analysts had expected 21 billion yuan in full-year profit. Full-year revenue of 324.4 billion yuan also fell slightly short of an expected 331.6 billion yuan, according to Thomson Reuters Starmine Smart Estimates.
The year-end results implied a fourth-quarter profit of 1.51 billion yuan and revenue of 80.8 million yuan.
Telecom said mobile handset Internet revenue for the quarter grew nearly 50 percent from a year earlier, while 3G and 4G data traffic increased 56 percent.
Total mobile subscribers by the end of December had barely changed from a year ago at 186 million, but the number of high-paying 3G and 4G customers rose by 15.52 million to 119 million, Telecom said.
The board will recommend the dividend level for 2014 to remain at HK$0.095 per share.
Telecom shares were flat at HK$4.77 in mid-day trading in Hong Kong.