China United uses bulk purchase to lower costs
China United Telecommunications is stepping up efforts to boost subscriber numbers for its code division multiple access (CDMA) network with an order for one million handsets at a cost of 1.5 billion yuan (HK$1.4 billion) - a bulk purchase it said was designed to lower costs.
But the move has also raised concerns of a fresh round of handset subsidies at the mainland's No?2 mobile-phone carrier.
China United, parent of red-chip China Unicom, said yesterday that it had purchased one million 2.5 generation colour-display handsets from six suppliers at an average cost of 1,500 yuan each.
Motorola, ZTE Corp, Kyocera China Communications Equipment (a joint venture between Japan's Kyocera Group and China's Zhenhua Group), Qingdao Haier Group, Dalian Daxian Group and TCL Mobile Communications will supply the handsets.
The bulk purchase follows a recent order for 200,000 Nokia CDMA1x handsets at less than 1,000 yuan each in an effort to boost the low end of the market.
The carrier hopes lower handset prices which come with the bulk purchase will allow it to stimulate growth in user numbers and traffic for its value-added mobile data services.
'We need to see colour handsets widely available among the users in order to stimulate the usage of our wireless value-added services,' a China Unicom spokeswoman said.
At the end of last month, the group had nearly one million 2.5G users for its CDMA network.
But some analysts voiced concerns the handset purchase would be followed by a fresh round of aggressive subsidies, especially in light of the unimpressive CDMA subscriber take-up over the past eight months.
DBS Vickers Securities analyst Wallace Cheung expected China Unicom to accelerate its handset subsidies so it could reach its target of 14 million CDMA subscribers by the year-end, which would bring the total to 21 million.
But as of September 20, it had acquired just eight million new CDMA users bringing the total to 15 million, leaving it six million short of its target.
China United company secretary Lao Jianhua said the carrier did not intend to expand its handset subsidies but was simply acting as a co-ordinator for handset distributors to ensure a sufficient supply of low-priced phones.
'We're definitely not going to increase our handset subsidies heavily,' Mr Lao said. 'Instead, our strategy remains the same: to gradually reduce our costs.'
China Unicom spent 2.9 billion yuan in the first half on CDMA handsets, leaving 5.7 billion yuan to be amortised over the next 12 to 18 months.
The unit cost for the latest CDMA models is substantially lower than what China Mobile paid in the first half for 480,000 handsets for its second-generation network. China Mobile paid about one billion yuan, for a per-unit cost of about 2,100 yuan.
'From what I heard from vendors, Unicom is really squeezing the price [of handsets],' CLSA telecoms analyst Charles Peza said.
He said handset manufacturers were suffering from significant drops to their CDMA margins because China Unicom had been able to knock down prices by about 20 to 30 per cent.
Last year, China Unicom paid about 2,000 to 2,500 yuan in subsidies for each new CDMA user.
Shares in the red chip rose five cents yesterday to finish at $6.25.
