China Telecom Corp Ltd said on Wednesday that its new messaging product Yixin marks a major step in the company's attempt to diversify into Internet business.

The country's biggest fixed-line and third-largest mobile operator by user numbers hopes that growth in the new field can help compensate for an expected slowdown in its infrastructure-based broadband, fixed-line and mobile businesses.

"We need a new growth engine as the growth of our traditional businesses will slow down," Wang Xiaochu, the company's chairman and chief executive officer, said at a news briefing in Hong Kong. He made the comments after reporting 15.9 percent profit growth in the first half to 10.2 billion yuan ($1.66 billion).

But Wang added that China Telecom's Internet business wouldn't be on par with industry giants such as Tencent Holdings Ltd and NetEase Inc.

Instead, in order to leverage its extensive infrastructure, the State-owned enterprise will focus on online payment.

He added that the country's biggest broadband provider would maintain a cautious attitude toward acquisitions, and would look instead at cooperation based on the model of Yixin, which was jointly launched on Monday with NetEase, one of the country's leading Internet companies.

The new service looks like an upgraded version of WeChat, which was developed by Tencent and is currently the nation's most popular mobile messaging service, with around 500 million users worldwide.

Besides offering text, image and voice messaging like WeChat, Yixin also offers music and e-mail linkage services. It also allows users to send SMS and voicemails to mobile phones with no Internet connection. A joint venture has been formed to run the service.

China Telecom has a controlling 73 percent stake in the venture, which has registered capital of 200 million yuan. NetEase holds the remaining stake.

More than 1 million people downloaded the Yixin service within 24 hours of its launch. Wang said that games, which are the most profitable component of China's Internet industry, would be launched in the service. NetEase is one of the nation's top operators of online games.

Yixin is supposed to be a major competitor of WeChat, which was recently monetized through the addition of games.

On Wednesday, China Telecom rose 1 percent to HK$4.06 (52 US cents) in Hong Kong trading. The stock has dropped 5.4 percent this year, compared with a 3.8 percent decline in the benchmark Hang Seng Index.

Its operating revenue grew 14 percent year-on-year in the first half, to 157.5 billion yuan. Revenue was 139.2 billion if sales of mobile terminals were excluded, up 10 percent year-on-year. The company added 13.88 million mobile subscribers in the January-June period, bringing its total number of subscribers up to 175 million.

The company added 18.28 million 3G users in the first half, bringing the proportion of its 3G users to 50 percent. That surpassed both its both its larger rivals, China Mobile Ltd and China Unicom (Hong Kong) Ltd.

Fixed-line user numbers declined 4 percent to 159.6 million.

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