China Telecom Corp Ltd, the smallest wireless operator in China, posted an 8.3 percent drop in first half net profit on Wednesday, as higher handset subsidies ate into profits.

China Telecom, which competes with China Mobile and China Unicom in the wireless business, reported a first-half net profit of 8.81 billion yuan ($1.39 billion), down from 9.62 billion yuan a year earlier. Revenue rose 14.8 percent to 138.02 billion yuan in the period.

China Telecom also said that it would acquire the 3G assets from its parent company China Telecom Corp, for 84.6 billion yuan, a lower price than that expected by the market. China Telecom said the acquisition would improve its profitability and flexibility as it builds up its wireless network infrastructure.

China Telecom became the second Chinese carrier to sell Apple Inc's iPhone series on contracts. In a statement, it said marketing expenses for the iPhone would weigh on profitability, but it expected the spending to help attract higher-end consumers.

China Telecom has 144.18 million mobile subscribers as of June, including 50.96 million 3G subscribers.

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