China Unicom Profits Boosted by Towers JVChina Unicom Profits Boosted by Towers JV

China Unicom has reported a near trebling of its net profit for 2017 thanks to bigger contributions from associates and joint ventures, including its TowerCo venture with China's other operators.

Net income soared to 1.83 billion Chinese yuan ($290 million) in 2017, from RMB625 million ($99 million) in 2016, even though sales at China Unicom Ltd. (NYSE: CHU) edged up just 0.2%, to RMB274.8 billion ($43.5 billion).

Unicom said the share of its profits that came from TowerCo rose from RMB200 million ($31.6 million) in 2016 to RMB907 million ($143.5 million) last year. It also registered RMB594 million ($94 million) in net profit from a Chinese financial services company called Merchants Union Consumer Finance, up from just RMB168 million ($26.6 million) in 2016.

After deducting those contributions, China Unicom would have been left with a net profit of just RMB329 million ($52 million). Last year, it made RMB257 million ($40.7 million) in net profit after stripping out contributions from associates and joint ventures.

The financial update follows a major restructuring at China Unicom last year, when the company was reported to have raised about $11.7 billion in funding from private investors including Chinese Internet giants Alibaba, Tencent and Baidu.

That injection of capital would be akin to Google taking a stake in AT&T or Verizon and raises questions about the future relationships between telcos and Internet companies amid ongoing sector upheaval.

Outside China, Internet players are widely perceived to have become more assertive as communications players in their own right. They are also developing the technologies that could underpin telecom services and operations in future.

That includes the artificial intelligence (AI) systems that operators are using in chatbots, customer service functions and even to support network operations. (See Robot Wars: Telecom's Looming AI Tussle.)

Alibaba earlier this year claimed to have developed an AI that outperformed humans in tests of reading ability and comprehension.

In its latest earnings update, China Unicom said its aim was to increase pre-tax profit at a compound annual growth rate (CAGR) of 68.7% over the 2017-20 period. Service revenues are expected to rise at a CAGR of 6.5% over the same period.

Growth is expected to come partly from activities with new partners. Last October, for example, China Unicom was reported to be planning an expansion of its cloud computing business in China in partnership with Alibaba.

China Unicom said that service revenues were up 4.6% in 2017, to around RMB249 billion ($39.4 billion), and its earnings rose 2.4%, to about RMB81.4 billion ($12.9 billion). But for an asset disposal related to its fiber network upgrade, it would have registered a 6.1% increase in net profit.

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China Unicom is battling market leader China Mobile Communications Corp. and close rival China Telecom Corp. Ltd. (NYSE: CHA) in the market for broadband and mobile data services. It finished 2017 with more than 284 million mobile customers, up from nearly 263 million in 2016, and had about 175 million customers on its 4G network, compared with fewer than 105 million in 2016.

That leaves it dwarfed by China Mobile, which about 887 million mobile users, including 650 million 4G ones, at the end of last year. China Mobile's business has grown by 38 million mobile customers since the end of 2016.

In a presentation, China Unicom said it would invest about RMB50 billion ($7.9 billion) in capital expenditure this year, up from RMB42.1 billion ($6.7 billion) in 2017.

Expenditure this year is expected to go partly toward building another 110,000 basestations, boosting the total to around 960,000, as well as on the deployment of 10G PON technology. Such investments would help to prepare the operator's network for the rollout of 5G services in the next few years.

In October, China Unicom also revealed that it would make investments in building "thousands" of edge data centers in the next few years as part of a broader network overhaul linked to the rollout of 5G services. (See China Unicom to Build 'Thousands' of Edge DCs.)

Earlier this week, China Telecom said it would need to deploy more than 2 million 5G-enabled basestations across China to cope with demand for next-generation mobile broadband services. (See China Telecom Eyes 2M+ Basestations for 5G.)

It also said it would need to build a new optical transport network to cope with the capacity demands on its infrastructure.

— Iain Morris, News Editor, Light Reading