BEIJING, April 15 (Xinhuanet) -- China Telecom Corp., the nation's biggest fixed-line phone operator, has agreed to pay its State-owned parent US$3.4 billion (27.8 billion yuan) in cash for 10 provincial networks, as it tries to catch up with faster-growing cellular phone operators.

    The company, which is based in Beijing and trades its shares in Hong Kong and New York, said it would assume US$4.8 billion of debt and sell as many as 7.56 billion new shares after May 3 to fund the purchase. The acquisition will increase the number of its lines by 43 million to more than 160 million.

    China Telecom needs more users to boost profit, as new line growth has lagged that of cellular competitors such as China Mobile (Hong Kong) Ltd. in the nation's US$50 billion phone market. China's fixed-line users rose 4.4 percent to 274.5 million in February from December last year, compared with a 5.1 percent increase in cell phone users, according to government statistics.

    ``It makes sense for them to buy it instead of setting up everything from scratch,'' said Samantha Ho, who helps manage about US$3 billion at Manulife Funds Direct (Hong Kong) Ltd. ``It would even eliminate some competition with the parent company.''

    China Telecom, the operator of more than half the fixed line phones in the world's most populous nation, will pay US$1 billion in cash now and US$2.4 billion during the next 10 years, the company said.

    The assets acquisition, the second in six months, will leave its parent China Telecommunications Corp. with a network in western Tibet and a 70 percent stake in the listing unit, after accounting for the sale of new shares. The parent also owns a long-distance network with China Network Communications Group Corp.

    China Telecom may raise net proceeds of 22 billion yuan (US$2.65 billion) from the new stock sale, assuming a price of HK$2.825 for each share, the company said in an announcement.

    China Telecom said it expected the networks to earn a profit of 3.1 billion yuan this year.

    The acquisition, which needs to be endorsed by shareholders on June 9, is expected to boost the company's earnings by at least 5 percent per share, said Chief Financial Officer Wu Andi at a press briefing Tuesday.

    The networks, also located in the provinces of Hubei, Hunan, Hainan, Yunnan, Shaanxi and Qinghai, reported 18 percent growth in lines in service last year and the number of broadband subscribers surged almost 200 percent from 2002. The acquisition took the number of provinces China Telecom serves to 20.

    The networks purchase will increase China Telecom's debt-to- capital ratio to between 43 and 49 percent from 36 percent, Wu said. China Telecom will pay an annual interest rate of 5.18 percent to its parent on the outstanding amount for the first five years.

    (Shenzhen Daily/Agencies)