China Unicom

Rising costs see sharp fall in Unicom profits

PUBLISHED : Wednesday, 27 April, 2011, 12:00am
UPDATED : Wednesday, 27 April, 2011, 12:00am


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China Unicom (Hong Kong), the country's second-largest wireless network operator, warned of 'substantially different' interim earnings this year due to escalating costs and higher 3G handset subsidies.

Based on the sharp fall in profit for the quarter to March it reported yesterday, Unicom would appear hard-pressed to meet last year's first-half net profit of 2.53 billion yuan (HK$3.02 billion).

The Beijing-based company, which is Apple's exclusive mainland carrier-partner for the iPhone, said its first-quarter net profit declined 86 per cent to 166 million yuan from 1.21 billion yuan a year ago.

That decrease was attributed to higher costs and other expenditures, which were up 25.3 per cent year on year to 48.79 billion yuan.

It included 1.9 billion yuan in 3G handset subsidies, 6.79 billion yuan for sales and marketing, 14.06 billion yuan in depreciation and 6.84 billion yuan in network, operation and support expenses.

Unicom's shrunken net profit was lower than the average forecast of 750 million yuan from analysts polled by Reuters and the 1.13 billion yuan median from Bloomberg estimates.

First-quarter revenue increased 21 per cent to 49.03 billion yuan from 40.52 billion yuan the previous year.

Turnover from the carrier's mobile business rose 42 per cent year on year to 28.42 billion yuan, with service revenue from its 3G network reaching 5.68 billion yuan.

Unicom reported a total of 174.54 million mobile subscribers as of the end of last month. It had 156 million 2G network users and 18.54 million subscribers on its high-speed, WCDMA-standard 3G network.

The monthly average revenue per user (Arpu) for 3G customers was 117.2 yuan.

Despite what the carrier described as 'rapid growth' in its mobile business, driving an earnings recovery will remain a major effort.

'Unicom progressively rolls out lower pricing plans and higher subsidy levels to drive this growth, putting pressure on its Arpu and earnings forecasts,' Lisa Soh, an analyst at Macquarie Securities in Hong Kong, said in a report.

Revenue from Unicom's fixed line business was up slightly to 20.36 billion yuan. Its fixed-line network business had 96.55 million local-access subscribers as of last month, with broadband network users totaling 49.8 million.

Unicom's share price was down 2.48 per cent to close at HK$15.72 .

Bad signal

The first-quarter profit of China Unicom (Hong Kong) declined this much from the same period last year: 86%