China Unicom, the second largest fixed line telephone and broadband provider in China's mainland, reported a 5 percent fall in quarterly profit on October 28, lagging expectations as bigger rival China Mobile encroached upon its market share in the run-up to 3G services.
After years of rapid expansion in the world's top telecommunications arena, China's wireless duopoly is looking beyond coastal cities and towards new services for growth, while awaiting the arrival of third-generation network services.
Industry watchers have been hoping for three years that Beijing would give the green light for 3G, unleashing over USD 10 billion in spending on equipment and jump-starting growth in a maturing market that is the world's largest by users.
China Unicom reported a net profit of CNY 1.39 billion for the third quarter of this year, versus CNY 1.47 billion a year earlier.
The result missed a consensus estimate of CNY 1.58 billion provided by three analysts, partly due to a CNY 226 million non- cash derivatives liability loss related to the recent convertible bond issue.
The company said it issued USD 1 billion zero coupon convertible bonds in July and the fair value of the derivative liability of the bonds is calculated by a binomial model, which requires the input of subjective assumptions, including the volatility of share price.
Beijing may unveil the results of trials of a homegrown 3G standard known as TD-SCDMA, originally due for completion in June but delayed until October, in coming months, with 3G licenses possibly following in early 2007, analysts say.
Third-generation services offer faster Internet access and better multimedia services, which operators hope will open up new sources of revenue. But subscriber uptake in many markets has been patchy. Analysts warn that China Mobile's and Unicom's earnings growth might decelerate over the course of the year as they battle for lower-paying clients.
Margins are narrowing as the pair push into less-affluent second-tier and third-tier cities and the countryside.
Unicom's 2006 net profit is forecast to rise 12 percent to HKD 5.54 billion, according to 22 analysts.
In the meantime, China Mobile claimed nearly four-fifths of net mobile user additions in the first three quarters of 2006.
Shares in Unicom rose 10.5 percent in the third quarter, lagging China Mobile's 24 percent gain but outpacing a 7.8 percent rally by the benchmark Hang Seng Index. [.HSI]. Its stock trades at 18.98 times prospective earnings, versus China Mobile's 18.9 and SK Telecom's 10.4.
Founded in 1994, China Unicom is the only large-scale, state-owned telecommunications operator approved by the State Council in China. China Unicom offers basic and value-added telecommunications services including wireless mobile telecommunications, data communications, international and domestic long distance calls, local calls, wireless paging, satellite communications, value-added telecommunications services and other associated businesses.
China Unicom has more than 300 subsidiaries across China. It is also the only Chinese telecom operator simultaneously listed at New York, Hong Kong and Shanghai Stock Exchanges. China Unicom's successful IPO in Hong Kong and New York in June 2000 raised a total of USD5.65 billion for the company, ranking one of the top 10 IPOs around the world. In October 2002, the company was listed at Shanghai Stock Exchange as the largest domestic listed company in terms of market capitalization.