Unicom net down 68% on 3G costs

Nicole McCormick
30 Apr 2010

Increasing competition has driven down first quarter profits for China Unicom and SK Telecom, the operators have reported.

Unicom said its first quarter net fell 68% year on year to 1.13 billion yuan ($165.6 million), due primarily to depreciation and 3G network and marketing costs.

Excluding the 80 million yuan amortization of upfront connection fees, profit would still have dropped 69% to 1.05 billion yuan, which was higher than analyst expectations.

“Affected by the expansion of networks and the operation of [the] 3G business at an initial stage, the increase in depreciation and amortization, finance costs, selling and marketing expenses and networks, operations and support expenses was relatively significant,” Unicom stated.

Revenue rose 6.6% to 40.42 billion yuan, with ARPU increasing slightly to 41.5 yuan thanks to 3G’s contribution.

With sluggish 3G take-up to date, and with rivals China Mobile and China Telecom aggressively chasing customers, Unicom is expected to ramp up its promotion this year.

Meanwhile, SKT’s Q1 net rose 1.6% year on year to 321.8 billion won ($287.6 million), but operating profit plummeted 15% to 480.5 billion won for the second consecutive quarter.

Heightened smartphone competition and continued discounting forced SKT to increase marketing costs by 28% to 846 million from a year earlier, adversely affecting operating profits.

Revenue grew 4.9% to 3.02 trillion won, helped by increasing subscribers and higher mobile internet sales.

SKT has upped its smartphone subsidies to compete with KT, which has sold more than 500,000 iPhones since debuting the device exclusively in November.

“Marketing competition has cooled down since April and the first quarter should be the bottom for SK Telecom’s earnings this year,” Denny Kim, an analyst at Eugene Investment & Securities, told the Korea Herald.

The Korea Communications Commission ruled last month that mobile operators limit marketing spending to 22% of total revenue by end-2010 to ease competition.

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