China Unicom aims to turnaround despite record slump in 1H profit

telecomasia.net

China Unicom, the country’s second largest mobile carrier by subscribers, is expecting a gradual turnaround as soon as next year after the company reported its largest slump in first-half net profit since 2000.

Unicom chairman and CEO Wang Xiaochu said “a more solid foundation has been built for healthy development in the future with stronger growth momentum.”

“The company’s most difficult time was over,” Wang told a media briefing in Hong Kong on Wednesday. "We expect a sales turnaround in November and December, and a profit turnaround next year."

Unicom announced on Wednesday that its January-June net profit reached 1.43 billion yuan ($216 million), down 79.6% from a year earlier, in line with a preliminary estimate in July. EBITDA fell 18.2% to 41.28 billion yuan while revenue dipped 3.1% to 140.26 billion yuan.

But the results nonetheless marked a significant improvement of the 3.36 billion yuan loss - excluding the gain from the tower asset disposals - recorded during the second half of last year.

Unicom blamed the poor interim results on hefty costs resulting from increased tower costs and heavy expenses to market its 4G network and services.

According to Unicom, the company saw up to 15% fee increase for using China Tower, as well as electricity tariffs and property rental hikes during the first half of this year.

Meanwhile the delays in building the LTE network for 4G services also led to substantial increase in marketing costs, with sales and marketing expenses in the first half racking up 17.1% on the year to 17.1 billion yuan, while handset subsidies jumped 43.5% to 1.756 billion yuan.

"Our biggest problem is having missed almost two years to become well-geared for the 4G era," Wang said.

Biggest rival China Mobile has been offering 4G service using TD-LTE technology since December 2013. China Unicom and China Telecom, however, were only granted a license to conduct hybrid FDD and TDD LTE network trial in June 2014.

Despite that, Wang said the company achieved initial success in turning around the unfavorable conditions in business development, by mitigating the underlying shortcomings in areas such as network, terminals, channels, services, IT, systems and mechanisms. This includes focusing its mobile business on 4G and driving availability of 4G handsets and accelerating 4G network rollout through partnership with China Telecom.

As a result the company achieved a net addition of 8.39 million mobile subscribers during the period. This compares favorably to the operator's performance last year, when the company recorded net losses of customers for consecutive months.

Unicom also saw its 4G base grow to reach 72.42 million as of June, thanks to “improvement in 4G network quality, terminal market share and competitiveness.” Yet this number still far behind China Mobile’s 430 million 4G subscribers.

Unicom and China Telecom signed an agreement in January to push through a five-pronged collaboration, which embraces costs sharing on 4G network build-outs in rural areas and promotion of the so-called "six-mode" smartphones that are compatible with all networks.

Wang said the collaboration is necessary as Unicom’s network could now support 63% of the mobile handsets in the market, up from 40% at the end of last year. The partnership with China Telecom on 4G infrastructure sharing also helped Unicom achieved 3 billion yuan savings in capex, he added.

Unicom will continue to push forward comprehensive and strategic cooperation with China Telecom on areas including mobile and fixed infrastructure sharing, Wang added.

To recoup the lost ground in 4G from China Mobile and China Telecom, Unicom has earmarked 30 billion yuan for 4G network deployment in the second half of the year, with plans to increase the number of its 4G base stations to 680,000 by year-end, up from 280,000 last year.

China Mobile last week posted a 5.6% increase in net profit to 60.6 billion yuan in the first six month of this year.

Smaller rival China Telecom will announce its 2016 interim results on August 26.

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