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China Unicom Loses Out to Rivals

Iain Morris
8/21/2015

China Unicom, the second biggest of China's three mobile operators, appears to have underperformed its two rivals on revenue growth and 4G adoption over the first six months of the year.

Reporting financial results earlier today, the operator revealed its revenues had fallen by 3.3%, to 144.7 billion Chinese yuan ($22.7 billion), compared with the same period last year.

Earlier this week, market leader China Mobile Ltd. (NYSE: CHL) flagged a 4.9% increase in first-half revenues, while China Telecom Corp. Ltd. (NYSE: CHA), the smallest mobile player, reported a revenue decline of just 0.6%. (See China Mobile Profit Dips on 4G Costs, Tax and China Telecom Hit by Taxes as 4G Subs Soar.)

Moreover, both players boasted slight increases in service revenues -- of 0.5% and 0.6% respectively -- while China Unicom Ltd. (NYSE: CHU) suffered a 5.3% fall in this figure.

China Unicom claimed to be moving in the right direction, with non-voice services now accounting for 68.3% of mobile service revenues, but it appears to have been hit badly by subscriber losses and a sharp decline in average revenue per user (ARPU).

While both China Mobile and China Telecom have picked up new mobile customers since the first half of 2014, China Unicom's mobile customer base has shriveled from 295 million to 289.3 million over that period.

Table 1: Financial Performance in H1 2015 (RMB Billions)

Total revenue YoY change Mobile service revenue YoY change Net profit YoY change
China Mobile 340.7 4.90% 299.5 0.50% 57.3 -0.80%
China Telecom 165.0 -0.60% 62.3 0.60% 11.0 -4.00%
China Unicom 144.7 -3.30% 73.5 -9.70% 7.0 4.50%
Source: companies.

Table 2: Customer Growth in H1 2015 (Millions)

Mobile customer adds Total mobile customers 4G adds Total 4G customers
China Mobile 10.57 817.20 99.60 189.66
China Telecom 5.82 191.44 22.00 29.00
China Unicom -9.8 289.30 N/A N/A
Source: companies.

What's more, in the last year, China Unicom has added fewer than 17 million mobile broadband customers, meaning subscribers to either 3G or 4G services.

That looks especially disappointing given that China Mobile acquired another 99.6 million 4G customers alone in the first six months of the year, with China Telecom picking up another 22 million.

Perhaps unsurprisingly, China Unicom remains rather tight-lipped about its progress in the country's 4G market.

Like China Telecom, it received a license to operate an FDD-based 4G network earlier this year, but has clearly lost out to its smaller mobile rival in this area, with China Mobile -- whose network is based on the alternative TDD technology -- putting both operators to shame.


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China Unicom said that its mobile ARPU had fallen to RMB41.6 ($6.51) per month in the first half from RMB47 ($7.36) in the same period last year -- a much steeper decline than either of its competitors experienced over the same period.

About the only success China Unicom could boast over China Mobile and China Telecom was on net profit, with cost savings and efficiency measures delivering a 4.5% year-on-year increase in this figure, to about RMB7 billion ($1.1 billion).

Both China Mobile and China Telecom saw first-half profits decline compared with the same period last year.

China Unicom also did reasonably well in the country's fixed-line market, which accounted for about 38% of its service revenues in the first half.

Fixed-line revenues were up by 2.2%, to RMB46.2 billion ($7.23 billion), thanks to rising adoption of high-speed broadband services and an increase in broadband ARPU.

The operator said it has been speeding up its rollout of a fiber-optic network and driving customers towards fiber-based broadband services.

Nevertheless, while capital expenditure was 38.2% higher than in the first half of 2014, at RMB29.8 billion ($4.67 billion), operating expenses fell by 4.3% over the same period, to RMB132.8 billion ($20.8 billion).

Sharp reductions to marketing costs and device subsidies have certainly helped to shore up profits, but they are obviously making it much harder for China Unicom to keep up with its adversaries in China's burgeoning 4G market.

— Iain Morris, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, News Editor, Light Reading

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nasimson
nasimson
9/1/2015 | 10:58:46 AM
Slow down
3.3% revenue decline! That's a sin in a capitalist mode of economy to which China is moving to. Perhaps this is just one of the manifestations of a slowing down Chinese economy.
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