Unicom to invest 1.8b yuan more in network upgrade

China Unicom plans to spend an extra 1.82 billion yuan this year upgrading its GSM (global system for mobile communications) network to 2.5G standard.

But analysts, who expect Unicom to be broken up as part of a restructuring of the industry before Beijing issues 3G licences next year, said the move had come too late.

The upgrade will provide high-speed mobile data services for Beijing, Shenzhen, Shanghai and Guangdong province.

'Due to our stronger than expected GSM business for the first half and the fact that some provinces are facing tight network capacity resources, we will raise [capital expenditure] by up to 10 per cent of our budget this year,' said executive director Shang Bing.

This will mean an increase from 18.23 billion yuan to 20.05 billion yuan.

The news came as the No2 mobile-phone operator reported a 19.4 per cent drop in first-half net profit to 2.32 billion yuan from 2.89 billion yuan a year earlier, due to losses in its CDMA (code division multiple access) business and slower overall subscriber growth. The figure was in line with expectations.

As at June, Unicom had 120.53 million subscribers, which is a 33 per cent share of the mobile market of 363.17 million.

Operating revenue rose 10.19 per cent to 43.24 billion yuan from 39.24 billion yuan.

While analysts said the added capital expenditure amount was not significant, they said Unicom was being inconsistent with its CDMA business strategy by appearing to shift its break-even target by the end of this year.

The business made an operating loss of 458 million yuan in the first half.

'Unicom's increasing investment on its GSM network, while at the same time wanting to achieve profitability from its CDMA business, highlights the problem of struggling with two networks,' said ICEA telecommunications analyst Bertrand Chui.

'It might be the right move for Unicom to cope with the increased demand for the GSM service but given the fact that it could be forced to sell one of its networks in the anticipated industry restructuring, this is obviously a move that comes too late.'

It is widely expected that Unicom's two networks will be split between the two fixed-line players, China Telecom and China Netcom, in the restructuring.

Unicom's CDMA operating loss came after it made a 330 million yuan provision for handset inventory. In the first half, the company paid 2.55 billion yuan in handset subsidies to lure 3.1 million subscribers to the network.

Meanwhile, GSM operating profit stayed flat at 3.86 billion yuan. It added 5.35 million GSM customers for the first half.

Chairman Chang Xiaobing said that average revenue per user was expected to continue to decline.