Telecommunications network operator China Unicom's profit down 22.5 per cent

Mobile network hopes to turn around flawed 4G strategy with revamped expansion plan

PUBLISHED : Friday, 23 October, 2015, 12:23am
UPDATED : Friday, 23 October, 2015, 12:23am

China Unicom has posted a widely expected decline in earnings for the nine months to September, while its new chief executive pursues a turnaround strategy with a revamped 4G expansion plan.

The world's fourth-largest wireless network operator by subscribers on Thursday reported a 22.5 per cent drop in net profit during the period to 8.18 billion yuan (HK$9.97 billion), from 10.56 billion yuan a year ago.

Total service revenue from its mobile and fixed-line operations fell 3.8 per cent to 179.75 billion yuan from the previous year.

In its filing with the Hong Kong stock exchange after the market closed, Unicom mainly attributed the decrease in earnings to the impact of the central government's implementation of a value-added tax scheme and directive for the country's three telecommunications carriers to cut marketing expenses.

Unicom had 287.57 million combined 2G, 3G and 4G mobile subscribers at the end of September.

"We believe a flawed strategy for 4G deployment amplified Unicom's problems, and is largely responsible for its underperformance versus its two rivals," Bernstein senior analyst Chris Lane said in a research note.

Lane said Unicom made the mistake of chasing the broad 4G service coverage of domestic market leader China Mobile, the world's biggest wireless network operator, while it still continued with 3G infrastructure projects.

"In essence, they bet that a little 4G in more places was better than a lot of 4G just in the key cities. They were wrong," Lane said.

China Telecom, which operates a smaller wireless network than those two carriers, also outperformed Unicom because it focused 4G infrastructure development in key urban centres where wealthier early adopters are located, he added.

Wang Xiaochu, who took over as chairman and chief executive at Unicom last month under a government-backed reshuffling of leaders at the three network operators, was expected to fix Unicom's problems.

Lane said Unicom president Lu Yiming announced last month the company would halt its 3G expansion plan so that it can channel more resources into its 4G infrastructure development.

Unicom's revised network build-out plans target the operation of 500,000 4G base stations by the end of this year, Lane said. That will swell the total number of 3G and 4G base stations deployed by Unicom to 1.2 million, covering 95 per cent of China's population.

Shares of Unicom were down 2.92 per cent to close at HK$9.96 on Thursday.