China Unicom to Top 3G Goal - Analyst Blog
May 27 2011 - 10:23AM
Zacks
China's second largest mobile operator China
Unicom (CHU) is confident of expanding its 3G user base
beyond its expectation.
In April, China Unicom added 1.817 million subscribers reaching
a total customer base of 20.352 million. This was less than 1.855
million customers added in March. Despite the slowdown in new users
in April, the company expects to exceed its previous target of 25
million 3G users in fiscal 2011.
The company’s 3G business is performing well and is expected to
sustain the momentum well into the future. 3G remains a compelling
opportunity and represents the single biggest driver of the
company’s long-term growth. For the full year, capital spending on
the 3G network is estimated at RMB 73.80 billion.
We believe China Unicom will continue to make significant
progress in expanding economies of scale in 3G, broadband and other
businesses that will likely improve its overall revenue and
profitability. The company is offering 3G services in collaboration
with Research In Motion Limited’s (RIMM)
Blackberry phones.
Additionally, the company has the exclusive right to distribute
Apple Inc.’s (AAPL) iPhone in China. China Unicom
is also in talks with Apple to sell the iPad by the end of
2011.
China Unicom’s 3G and fixed-line broadband business have been
increasing at a faster pace since last year. However, these
businesses are expected to remain under pressure due to increasing
depreciation and amortization expenses; networks, operations and
support expenses; as well as selling expenses for the remainder of
this year. We believe these expenses will have an adverse effect on
the company’s future profitability, free cash flow and margins.
Further, higher handset subsidies and increased costs related to
3G service deployments will continue to be headwinds for the
company. Despite these challenges, we expect China Unicom to
benefit from new users this year.
China Unicom is offering handsets at subsidized rates with lower
3G service plans for multi-year contracts to retain existing
customers and add new ones. This will weigh on the company’s future
overall average revenue per user. Moreover, China Unicom remains
significantly challenged by aggressive nationwide 3G service
rollouts by its peers, China Mobile (CHL) and
China Telecom Corp. (CHA).
We currently have a long-term Neutral rating on China Unicom,
with a Zacks # 3 Rank .
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