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China Unicom

Unicom faces uphill battle playing second fiddle

PUBLISHED : Monday, 19 November, 2007, 12:00am
UPDATED : Monday, 19 November, 2007, 12:00am

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Founded in 1994, China Unicom was intended to break the monopoly of bigger rival China Mobile. But from the beginning, the country's second mobile operator was destined to fight a losing battle.

Unicom started with a modest founding capital of only 1.3 billion yuan from central government-controlled agencies and companies including China Everbright and China Merchants. Each of the 13 initial shareholders committed about 100 million yuan for a stake in Unicom, according to Shi Cuiming, a former director of the company.

To make matters worse, Unicom was charged with introducing and developing a code division multiple access (CDMA) network in the mainland that played second fiddle to the globally adopted GSM network.

The CDMA network was an expensive investment at an estimated 100 billion yuan, with Unicom also operating a smaller GSM network simultaneously. At one point in 2004, the firm attempted to offer a dual-network service to high-end users. But that failed to take off with customers believing China Mobile's service was superior to Unicom's dual network.

Mr Shi said Unicom's start-up capital was far from sufficient to pay for network infrastructure and the business expansion needed to compete with China Mobile.

'In order to build the network, Unicom management aligned itself with foreign investors,' said Mr Shi. But the arrangement was not officially endorsed and ended before Unicom went public in 2000.

With China Mobile successfully listed in 1997, Beijing proceeded to prepare a share sale for Unicom in the late 1990s.

Mr Shi, along with other senior Ministry of Information Industry officials, including Wang Jianzhou and Yang Xianzhu, were appointed to head Unicom's restructuring.

To enhance its appeal to investors and strengthen its asset base, Unicom took over the national paging business before the initial public offering.

The share sale was launched in Hong Kong in June 2000, generating a record-breaking US$5.6 billion. Unicom also became the first red-chip company to enter a mainland stock market with an A-share listing in 2002 raising 15 billion yuan.

But the company has yet to offer the kind of competition Beijing had envisaged. China Mobile's subscribers totalled 350 million compared with Unicom's 120 million customers for both its CDMA and GSM networks.

Speculation is now rife that Beijing will launch another round of sector restructuring, which could lead to the break-up of Unicom. One rumour is that Unicom's GSM mobile assets will be merged with China Netcom Group, while the CDMA assets will be injected into China Telecom Group.