The company says almost $2 billion was spent on first-quarter handset subsidies to lure subscribers to the network
Red chip China Unicom has cut the revenue target for its code division multiple access (CDMA) mobile operation by 20 per cent.
The cellular carrier also surprised the market by revealing it had spent more than two billion yuan (about HK$1.87 billion) in the first quarter on handset subsidies to lure subscribers to the new network - a move that contradicted the carrier's earlier claim that it would gradually eliminate CDMA handset subsidies.
Unicom had set a new monthly net average revenue per user (arpu) target of 80 yuan per subscriber, executive director and vice-president Shi Cuiming said on the sidelines of the company's annual general meeting yesterday.
As recently as a few months ago, China Unicom had reiterated its original net monthly arpu target of 100 yuan per subscriber. The target excluded handset subsidy costs paid by the carrier to acquire such users.
Mr Shi said the company revised the revenue target to reflect the market situation, as well as to take into account its extensive launch of CDMA pre-paid services in July, which would continue to drag down the CDMA network's arpu.
In the first quarter, China Unicom said net arpu for its CDMA operation fell to 87 yuan a month, compared to 98.3 yuan last year.
'At 80 yuan, our CDMA net arpu is still higher than [global systems for mobile] arpu, which is about 60 yuan,' Mr Shi said.
The company's gross CDMA arpu came in at 157.9 yuan, indicating that the carrier is still subsidising about 71 yuan per user through handset subsidies.
As of the end of March, China Unicom still had to amortise handset subsidy costs worth 5.91 billion yuan - only 70 million yuan less than for all of last year.
According to Mr Shi, handset subsidy costs remained high because the company was still in the early stages of phasing out CDMA handset subsidies.
'We did see a decline in handset subsidies in the first quarter,' he said.
'Last year, about 41 per cent of our CDMA subscribers used self-purchased handsets. The portion of self-purchased handsets increased to about 60 per cent in the first quarter.'
Francis Cheung, a telecommunications analyst at CLSA Emerging Markets, said China Unicom's CDMA handset subsidies would decline in the second half of the year when the carrier rolled out pre-paid plans for its CDMA network.
But he cautioned that CDMA arpu would be further dragged down by pre-paid plans, making it difficult for the carrier to achieve even its revised 80-yuan target.
Meanwhile, Mr Shi said the carrier was seeking ways of refinancing part of its outstanding 43.69 billion yuan debts through international capital markets in order to reduce its interest expenses.
He said interest costs could fall to less than 2 per cent through borrowing from international capital markets, against the 5 per cent China Unicom has to pay domestic banks.
The carrier also hopes to purchase its parent's 10 remaining provincial networks before the end of the year.