The strategy gives the carrier its first CDMA-era profit but growth is slowing China Unicom is forcing more users to pay for their phones, which is lowering the amount put aside for handset subsidies, but investors remain unimpressed and fear a decline in the mobile sector's breakneck growth trend. The country's No2 mobile operator reduced handset giveaway costs by 40 per cent in the July to September period compared with the preceding quarter, apparently reversing a policy of grabbing market share for its 21-month-old CDMA network at any cost. 'This is in line with our plan to gradually shift away from handset subsidies,' a China Unicom spokeswoman said. The strategy helped the carrier record a 20 million yuan (HK$18.58 million) pre-tax profit for the three months to September, the first profit since its CDMA network was launched. However, the boost from reduced handset subsidies was offset by a slowdown in underlying revenue growth due to a cut in call tariffs. Worries were also raised by a decline in the firm's core GSM business, with net profit from this operation declining 9 per cent over the period. Shares in China Unicom fell 3.14 per cent yesterday to $7.70. ABN Amro telecommunications analyst Helen Zhu downgraded China Unicom from 'reduce' to 'sell' yesterday, saying the carrier's prospects do not support the 43 per cent rally in its stock price over the past two months. She said the firm's CDMA average user spending had fallen 12 per cent quarter on quarter to 124 yuan, indicating that lower grade subscribers had joined the network over the last quarter. For the three months to September, China Unicom recorded a 72 per cent growth in CDMA subscriber numbers but revenue only grew by 14 per cent. 'The key concern is that core GSM profits declined 9 per cent quarter on quarter [to 1.76 billion yuan] while the CDMA business is barely starting to make profits,' CLSA Asia-Pacific Markets analyst Francis Cheung said. He cited concerns that new subscriber growth, while still positive, slipped by a monthly average of 31 per cent over the period. China Unicom said it spent only 790 million yuan on buying new CDMA handsets during the July to September quarter, a substantial reduction from the 1.38 billion yuan and 1.47 billion yuan booked in the second and first quarters, respectively. The firm's third-quarter net profit grew 26.5 per cent from the previous quarter to 1.39 billion yuan. After accounting for 1.67 billion yuan in deferred customer acquisition costs, the firm said 4.84 billion yuan of these costs remained on its books and would be amortised against revenues over the next 12 to 18 months. That compared with the 5.73 billion yuan for such costs at the end of June.