Price war hurts China Unicom
A faster than expected decline in China Unicom's average revenue per user (ARPU) has raised analysts' concerns about aggressive price-cutting and sparked heavy selling of the company's shares. They closed down 2.4 per cent at HK$4.15 on Wednesday.
China's No 2 mobile carrier, which operates both global systems for mobile communications (GSM) and code division multiple access (CDMA) networks in 21 provinces, saw a sharp fall in arpu in the first quarter.
GSM arpu fell 12 per cent to 60.6 yuan (about HK$57) from last year. Credit Suisse First Boston expects it to fall further to 55 yuan this year. The CDMA figure was down 8.4 per cent to 157.9 yuan.
The company posted a 1.29 billion yuan profit on revenue of 15.9 billion yuan.
Average revenue per minute fell 17 per cent to 37 fen on its GSM networks and 45.3 fen on its CDMA systems. 'This is in part due to the inclusion of the new assets from January 2003 but may also imply more aggressive price-cutting,' Goldman Sachs said on Wednesday.
ABN Amro analyst Helen Zhu said: 'It seems that Unicom did not show China Mobile's resilience in preserving its arpu and seems to have borne the brunt of price discounting more than its larger rival.'
CLSA analyst Francis Cheung said the drop in first quarter arpu was due to increased competition as well as the inclusion of nine lower-arpu provincial networks that China Unicom bought last year.
He said the narrower losses from China Unicom's CDMA operation was a positive signal, showing that the carrier had eased off handset subsidies. This might pave the way for its new network to break even this year.
'We are cautious about [China Unicom's] ability to execute successful launches of CDMA1x and CDMA pre-paid, without impacting profits in the second half of the year,' CSFB said.
Unicom expects to sign up 11.4 million new CDMA customers this year.
Despite scepticism by analysts and investors, China Unicom chairman and chief executive Yang Xianzu has reiterated that its CDMA business could achieve break-even point this year.
JP Morgan said it may revise down this year's forecast for China Unicom in light of its lower revenue, higher interest expenses and tax rate.
Analyst Richard Wu said: 'Unicom's overall earnings risk to [Sars] is higher than that of China Mobile and China Telecom since it depends more on subscriber growth from a lower base.
'Other things unchanged, halving subscriber growth and eliminating roaming revenue for three months would potentially reduce 2003 and 2004 earnings per share by 3 per cent and 9.1 per cent respectively.'