China Unicom Plans Massive Capex Hike

China Unicom Ltd. (NYSE: CHU) plans to increase its annual capital expenditure by 56 percent this year, taking its total outlay to 110 billion Yuan Renminbi (US$16.2 billion), the operator revealed today as it reported its 2008 financials. (See China Unicom Reports 2008.)

The carrier, which sold its CDMA business to China Telecom Corp. Ltd. (NYSE: CHA) and merged its GSM operations with the fixed assets of the former China Netcom as part of last year's telecom industry restructuring process, spent RMB70.5 billion ($10.3 billion) on its networks and IT systems in 2008. (See China Netcom Reports Q3, China Unicom Names CEO, and China Begins Carrier Revamp.)

Now, though, it has to fund the rollout of its 3G network and is planning to double its annual investment in broadband and data equipment.

Unicom spent nearly RMB33 billion ($4.8 billion) on its GSM network in 2008, though that included the capex attributable to the initial developments of its 3G WCDMA infrastructure. This year, it intends to spend a further RMB23.7 billion ($3.5 billion) on its GSM capabilities, plus RMB38.7 billion ($5.7 billion) on its 3G rollout. (See table below.)

Table 1: China Unicom Capex 2008/2009
All figures in Yuan Renminbi (RMB) 2008 capex in billions As a % of 2008 capex 2009 capex in billions As a % of 2009 capex
Total 70.49 100 110 100
3G cellular Not applicable Not applicable 38.7 35.2
GSM cellular 32.95* 46.7 23.7 21.5
Broadband and data business 9.05 12.8 18 16.4
Fixed-line business 0.73 1 0.7 0.6
Innovation and value-added platform 4.13 5.9 3 2.7
IT system 2.4 3.4 4 3.6
Infrastructure and transmission network 18.18 25.8 19.7 17.9
Others 3.05 4.4 2.2 2.1
* Including the capital expenditure attributable to the initial preparation relating to the development of the 3G cellular business
Source: China Unicom

Unicom, which recently awarded WCDMA equipment contracts to Alcatel-Lucent (NYSE: ALU) and Ericsson AB (Nasdaq: ERIC), aims to be providing 3G services in 284 cities by the end of 2009 and "further improve the quality of the GSM network." (See ChinaWatch: Capex Cuts & Contracts.)

The company is also ramping up its spend on its DSL, FTTH, and data communications infrastructure this year, effectively doubling its outlay to RMB18 billion ($2.6 billion).

The carrier intends to "accelerate the implementation of 'broadband upgrade and speed increase' and further improve its broadband access capability" this year, and attempt to slow the decline in its fixed line customer base by "bundling mobile and broadband services."

Unicom's 2008 results
The carrier reported a 58 percent hike in annual profits to RMB33.9 billion ($5 billion) thanks to the sale of its CDMA business to China Telecom last year.

Without the boost from that divestment, though, the picture isn't quite so rosy. Discounting the one-time gain of RMB26.1 billion ($3.8 billion) from the sale of the CDMA assets and a number of charges, including a RMB11.8 billion ($1.7 billion) writedown in the value of some legacy operations (mainly PHS fixed wireless), the carrier's net income would have been RMB14.3 billion ($2.1 billion), down nearly 6 percent year-on-year.

The carrier reported 2008 revenues from its continuing operations of RMB148.9 billion ($21.8 billion), down very slightly from 2007.

Revenues from mobile operations totaled RMB65.3 billion ($9.6 billion), of which nearly a quarter came from value-added (non-voice) services. Unicom ended 2008 with nearly 133.4 million GSM subscribers, up 12.8 million during the year.

Fixed-line services generated revenues of RMB82.8 billion ($12.1 billion) in 2008, down 4.4 percent from the year before. Revenues from traditional fixed-line voice were down 12.3 percent to RMB53.2 billion ($7.8 billion), but revenues from broadband and data communications were up nearly 24 percent at RMB25.2 billion ($3.7 billion). Unicom ended 2008 with 25.4 million broadband customers, having added more than 5.6 million new customers last year, but the company lost nearly 10.7 million local access line connections, ending the year with just more than 100 million.

— Ray Le Maistre, International News Editor, Light Reading

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