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China Unicom profit falls 68%
Published on: 2010-04-30
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HONG KONG—China Unicom (Hong Kong) Ltd., China's second-largest mobile operator by subscribers after China Mobile Ltd., said Thursday its first-quarter unaudited net profit fell 68% because of depreciation and costs associated with its third-generation mobile business.

Competition in China's telecommunications market has intensified since the government awarded 3G licenses to China Unicom, China Mobile and China Telecom Corp. in January 2009. Analysts said higher marketing expenses and rising network depreciation costs will likely drag down China Unicom's earnings this year, while the company's fixed-line business is still under pressure from subscribers switching to mobile phones.

The company, China's only licensed operator of Apple Inc.'s iPhone, said its unaudited net profit for the three months ended March 31 was 1.13 billion yuan ($165.6 million), down from 3.57 billion yuan a year earlier.

Excluding the amortization of 80 million yuan in upfront connection fees, its unaudited first-quarter profit fell 69% to 1.05 billion yuan from 3.42 billion yuan, above the average 868 million yuan average forecast of seven analysts.

Revenue rose 6.6% to 40.42 billion yuan.

Despite launching the iPhone in late October to boost its 3G mobile business, China Unicom had the fewest number of 3G users among China's three telecom carriers at the end of March. Rival China Mobile said in March that it is in talks with Apple to offer the iPhone in China.

China's 3G users reached 18.08 million at the end of the quarter. China Mobile had the biggest share at the end of last month at 42.5%, ahead of China Telecom at 30.8% and China Unicom at 26.7%, according to government data.

Observers are expecting China Unicom to launch a series of marketing campaigns to ramp up its 3G business in the coming months. As a result, the company's net addition of 3G subscribers may exceed one million in May or June, and rise to 1.5 million moving into third quarter, UBS analyst Jinjin Wang said in a recent report. "We believe this could be a strong catalyst in the short term."

Average revenue per user for China Unicom's mobile business—an industry gauge to determine the long-term growth rate of telecom operators—rose to 41.5 in the first quarter from 41.3 a year earlier, because of the contribution from the 3G business, the company said. ARPU for its 3G business in the first quarter was 139. It had no 3G business previously.

China Unicom merged with fixed-line operator China Netcom Group in 2008 under a government plan that revamped the country's telecom industry by cutting the number of operators to three from six.

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