Unicom earnings up 11pc after handset subsidy cut

China Unicom, the smaller of the mainland's two mobile-telephone operators, said net profit for the second quarter rose 11.44 per cent from a year ago after it cut handset subsidies for its growth-challenged CDMA network and boosted sales of value-added services.

The operator, which has 135.09 million mobile users or about 32 per cent share of China's 426.4 million total market, posted second-quarter net profit of 1.41 billion yuan, up from 1.27 billion yuan in the year-ago period. The figures were obtained by subtracting its first-quarter net profit from its first-half results released yesterday.

Net profit was in line with analysts' forecasts, rising 20.2 per cent to 2.79 billion yuan or 22.3 fen per share from 2.33 billion yuan or 18.5 fen a year ago. Turnover rose 8.2 per cent to 46.77 billion yuan from 43.24 billion yuan.

Unicom, which also operates the more common and cheaper-to-run GSM (global system for mobile communications) network, for the first time achieved two consecutive halves of pretax profitability for its CDMA (code division multiple access) business.

In the first half, it earned 295 million yuan, slightly up from 282 million yuan in the second half of last year. It suffered a 482 million yuan pretax loss a year ago.

'For the first half, we had strictly controlled the level of our CDMA handset subsidies,' chief executive Chang Xiaobing said. 'We are confident that our CDMA business will be profitable for the full year.'

Unicom had failed to achieve its goal of turning the business around in two years. It spent 1.35 billion yuan on handset subsidies in the first half, down from 2.55 billion yuan a year ago, as the price of handsets fell, mitigating the need to subsidise them, as well as cutting the size of the related expenses.

President Shang Bing said Unicom this year would buy six million CDMA handsets, without giving a comparable figure for last year.

In its battle with dominant operator China Mobile, which is not plagued by a CDMA network, Unicom has had to offer handset subsidies, as CDMA phones are costlier than their GSM units.

Unicom's GSM network had 100.6 million users at the end of June, while the smaller CDMA service had 34.5 million. China Mobile had 273.8 million users by June 30.

'At this stage, getting its CDMA business to break even is not too hard,' said analyst Kelvin Ho at Nomura Securities. 'Unicom's GSM annual revenue per user had risen but still suffered from low margins and profit because of its congested network.'

Meanwhile, the management said it would spend almost half of its 22 billion yuan capital expenditure budget this year to add capacity for 12 million more new GSM users.

Mr Chang said the company was ready to upgrade its network to 3G using any technology standard.

Shares of Unicom dropped 0.85 per cent to HK$7.03 before the results were announced.