The latest flurry of China Unicom selling came after it reported disappointing, slow CDMA subscriber pick-up in the first quarter with only 1.78 million new users signing up.

Having set a target of signing up 11.4 million new users for the CDMA network this year, the first-quarter number has once again raised market watchers' doubts over whether such a target is achievable.

Since the mainland's No 2 cellular operator revealed its quest to roll out a nationwide CDMA network in late 2000, it has been clouding its share performance.

Investors have worried about China Unicom extending heavy CDMA handset subsidies and cutting tariffs to meet subscriber targets, weighing on the carrier's profitability.

'It seems to me they [China Unicom] are doing CDMA for the sake of doing it, it is highly capital intensive, they need to pay a leasing fee to the parent company, and no one knows whether it is going to be justifiable in the end,' said Martin Lau, a fund manager at First State Investments.

Indeed, China Unicom's decision to pour about 20 billion yuan (about HK$18.74 billion) to build a nationwide CDMA mobile network was not a purely commercial decision, but partly political.

It was the State Council and the Ministry of Information Industry that called the shots when Unicom decided to build a nationwide wireless phone network using the CDMA technology developed by San Diego-based Qualcomm.

China United Telecommunications Corp, the parent of China Unicom, was the executor of the government's plan.

Before Qualcomm finally won the contract in 2000, Beijing had dropped then revived the plans for a national CDMA network as a key bargaining chip with the United States during the talks over China's accession to the World Trade Organisation.

China United has spent 18.9 billion yuan on building the first phase of the CDMA network with capacity for 15.15 million users. The carrier has two more phases to complete before the end of the year which will add capacity for another 20 million users.

The CDMA network was launched in January last year and has so far attracted 8.02 million subscribers. There is nothing wrong with CDMA technology except that it is more suitable for high-end users in developed markets, analysts say.

Unicom also runs a network based on the GSM standard which uses lower-cost handsets. The GSM network recorded satisfactory growth in subscribers, with 3.41 million users in the first quarter, taking the total to 56.88 million.

China Unicom, which leases CDMA capacity from its parent, recorded 988 million yuan in losses last year on the operation of the new network, eroding profits from its GSM network.

Analysts expect losses from the CDMA operation to narrow this year as the carrier shifts its strategy away from adding subscribers and towards higher margins. But most analysts do not expect Unicom's CDMA operation to show a profit until next year.

There are two schools of thought among analysts. One believes China Unicom shares are undervalued with all the bad news factored in. Others remain wary, saying the uncertainties stemming from the CDMA operation have yet to end.

Both CLSA analyst Francis Cheung and his ING Financial Markets counterpart Leon Chik said the slow growth in CDMA users during the first quarter was due to the company's shift in strategy to allow it to focus more on profitability and cut handset subsidies.

Mr Chik, who forecasts China Unicom will sign up about seven million CDMA users this year, said: 'The drag from CDMA is becoming less burdensome for China Unicom. And we think the direction in terms of improving profitability for CDMA is better now than six months ago.'

Two weeks ago, ING upgraded its recommendation on China Unicom from 'hold' to 'buy' and lifted the carrier's fair value to $5.66 from $4.65.

Other analysts are less upbeat, doubting China Unicom will achieve either its subscriber number or break-even targets for its CDMA operation this year.

DBS Vickers analyst Wallace Cheung, who has a 'sell' call on the stock, said Unicom would have to either extend its handset subsidies or sell low-price prepaid packages if it was to achieve its CDMA subscriber target.

Most analysts said they preferred larger rival China Mobile to Unicom because it had more resilience amid intensified competition and had managed to deliver more stable earnings.

Although China Mobile on Monday reported its lowest growth rate ever for both revenue and net profit for the first quarter, the carrier still beat analysts forecasts with a smaller-than-expected contraction in average revenue per user.