By Lee Chyen Yee and Huang Yuntao
HONG KONG (Reuters) - China Telecom Corp Ltd plans to offer its 106 million subscribers the Apple Inc iPhone by the end of 2011, sources said on Wednesday, which would make it the second operator to do so in the world's largest mobile phone market.
The move would 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 country'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 UK-based research firm Ovum. "The only way to keep costs down is to build up such a user base."
China Telecom's 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 and outperforming the Hang Seng Index's 1 percent gain.
Separately on Wednesday, China Telecom said in a statement that its president and chief operating officer, Shang Bing, 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 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 scheme, 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 on the details of the contract."
In May, China Telecom's chairman, Wang Xiaochu, told a news conference that the carrier had contacted Apple to launch the iPhone based on CDMA (code division multiple access) 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 TD-SCDMA (time division synchronous code division multiple access) technology.
A more likely scenario was for Apple to support China Mobile's 4G LTE (long-term evolution) technology, which would only be available either in late 2012 or 2013, they said.
If that is the case, China Telecom would be next in line 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."
($1 = 7.795 Hong Kong dollars)
(Editing by Chris Lewis and Matt Driskill)