China Unicom Warns of 85% Fall in Profit

China Unicom has warned investors that profits attributable to equity shareholders will fall by as much as 85% for the first three months of the year, compared with the same period in 2015.

The second biggest of China's three national mobile operators, China Unicom Ltd. (NYSE: CHU) had a torrid 2015, losing customers to market leader China Mobile Ltd. (NYSE: CHL) and smaller rival China Telecom Corp. Ltd. (NYSE: CHA).

In a filing with the US Securities and Exchange Commission, the company -- whose shares trade on the Hong Kong Stock Exchange -- claimed to have turned around its customer-growth fortunes, adding 6.61 million subscribers in the first quarter of the year after losing 14.26 million in 2015.

But that particular recovery appears to have come at considerable expense. First-quarter sales and marketing costs were up 16%, compared with the same period last year, while network, operation and support expenses grew 37%.

Those fees have torn into the bottom line: China Unicom estimates that profits attributable to equity shareholders will amount to approximately 480 million Chinese yuan ($74.3 million) -- 85% less than the corresponding figure for the first three months of 2015.

China Unicom was quick to point out that its profit estimate marks a considerable improvement on the loss of RMB4.55 billion ($704.5 million) it reported for the last three months of 2015.

Service revenues for the first quarter of 2016 are expected to come in at about RMB60.8 billion ($9.4 billion), representing growth in comparison with the same period last year and the final quarter of 2015.

The operator's share price closed down 1.9% in Hong Kong today.

China Unicom said it would focus on strategic initiatives and its "co-operation development" as it continued to work on reinvigorating its business.

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The service provider may have been referring to a strategic partnership with China Telecom announced earlier this year and aimed at reducing costs and improving services. (See China Unicom, Telecom Flag Strategic Partnership.)

It is also pooling network assets with those of China Telecom and China Mobile in a separate infrastructure scheme that is intended to support a more cost-efficient rollout of mobile broadband services. (See Telcos pool $34.5B of assets in China Tower.)

Nevertheless, China Unicom has failed to stand up to its two competitors -- and particularly China Mobile -- in the burgeoning market for 4G services. (See Tower Sales Boost China Telecom Profits and China Mobile Flags Concerns as Profits Dip.)

Last month, China Mobile claimed to have had about 312 million 4G customers on its network at the end of 2015, and 826 million mobile customers altogether.

Some 58.46 million of China Telecom's 198 million mobile customers were using 4G services on the same date. While China Unicom had a larger mobile business, with approximately 252.32 million subscribers, its 4G network served only 44.16 million customers in December.

China Mobile has been able to maintain and even extend its lead even though both China Unicom and China Telecom last year received licenses to use the FDD variant of 4G technology they prefer.

FDD (frequency division duplex) uses one spectrum channel for upstream communications and another for the downstream, while the TDD (time division duplex) standard favored by China Mobile sends all communications over a single channel.

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

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