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 No?2 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.
