The digital industry business of China Telecom (ASX: 00728), which has been a focal point of high expectations, has not delivered a satisfactory performance report for the first five months of the year.

First and most directly, as of the end of May, the revenue from China Telecom's digital industry business showed negative year-on-year growth. This business segment, which falls under the company's government and enterprise services division, emerged around 2020 and has in recent years become a key growth driver for that division, encompassing a series of core services such as cloud computing and big data under the company's digital transformation strategy.

Interestingly, in its 2025 financial report, China Telecom did not explicitly disclose the revenue figures for this significant business, leaving the specific situation unclear. However, information obtained through internal channels indicates that the growth rate for China Telecom's digital industry business revenue in 2025 was positive, albeit less than 1%. Since the start of this year, the revenue from this segment has consistently been mired in negative growth.

Provincial Performance Analysis

Second, the performance at the provincial branch level is also less than ideal. It has been revealed that only 14 provincial branches achieved positive revenue growth in their digital industry business, meaning less than half of the group's provincial units managed to do so. This helps explain why the group's overall digital industry revenue has struggled to increase.

More concerning is that only 11 provincial branches met their progress targets. This indicates that even among the branches that achieved positive revenue growth, some still failed to reach their scheduled milestones. It highlights the stringent nature of China Telecom's internal performance assessment, which evaluates not only revenue growth but also the pace of revenue achievement, with any shortfall in either area raising concerns.

Industry-Wide Challenges

In fact, the current difficulties in developing government and enterprise services are not unique to China Telecom; its two major competitors are facing similar challenges. However, from another perspective, the recent increase in the value-added tax rate for the three major telecom operators means that higher revenues lead to proportionally higher tax payments. This situation likely discourages operators from aggressively promoting their revenue scale, and they might even prefer to see a slight decline in reported revenues.