Cut-throat competition leads to Unicom gloom

09:23, May 04, 2010      

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China's second-largest mobile carrier China Unicom posted a 68 percent plunge in first-quarter net profit, lagging expectations, partly due to costs from adding third-generation service as intense competition continued to pressure its margins.

Expenses for the early stages of Unicom's 3G business, depreciation, marketing and other expenses was "relatively significant," the company said in a statement.

Unicom's weak results come on the heels of those from rival China Mobile, the world's largest mobile carrier by subscribers, which last week reported flat year-on-year first-quarter profit growth due to stiff competition and heavy spending on new third-generation mobile networks.

China is the world's biggest mobile market, with more than 700 million subscribers. But cut-throat competition among its three major carriers has seen profits stall or even shrink as they chase less lucrative subscribers in smaller cities to keep their user numbers growing.

Unicom merged with China Netcom Ltd in late 2008 in a government-led restructuring of the country's phone industry to boost competition.

Unicom and other carriers received 3G licenses last year, which is expected to drive revenues as users buy more services the technology supports. But carriers face high costs at the start to upgrade their networks and sign up customers.

For the first three months of the year, Unicom booked a 16.9 percent increase in costs largely to higher sales and marketing and network operations expenses.

Unicom, the exclusive China distributor of Apple Inc's \ iPhone, is looking to lower the price and monthly data fees on the gadget in order to broaden its appeal to the mainstream market, analysts and local media reported this week.

It hopes to use the higher-end product to raise its average revenue per user, a widely watched performance indicator and now the lowest among China's three carriers.

Analysts said such a move would lead to a boost in mobile subscribers for Unicom given the iPhone's popularity in China.

Unicom's 3G ARPU was 139 yuan compared to its mobile ARPU which remained a flattish 41.5 yuan for the quarter versus from 41.2 yuan per month in 2009.

The company said it made a net profit of 1.13 billion yuan in the January to March quarter, lagging market expectations for a 1.68 billion yuan profit, according to a Reuters survey of three analysts. The profit was 68 percent lower than the 3.57 billion yuan from the same period a year ago. Revenue rose 6.6 percent in the first quarter to 40.4 billion yuan.

China Unicom and its two rivals, China Telecom and China Mobile, spent some $21 billion building up their 3G cellular network in 2009. China's mobile operators have been trying to promote data and value-added services as revenue and profits from voice calls decline in an increasingly saturated market.

Unicom has been trying to shore up its ARPU by scaling back on promotions, which has caused its new sign-ups to slip. Analysts fear the company may become more aggressive in the months ahead, adding even more pressure to the already competitive landscape.

Unicom said it had about 147.6 million mobile subscribers at the end of 2009 and 2.7 million 3G users at the end of last year.

Source:China Daily


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