Unicom warns of 50% profit dive

Nicole McCormick
01 Feb 2010

High 3G rollout costs are partly to blame for China Unicom’s latest warning that its earnings could fall by more than half.

China Unicom (Hong Kong) said that its profit for the year to December “is estimated to decrease by over 50%” compared to 2008.

“The W-CDMA business of the Company, which commenced operations on 28 September 2009, has had an impact on [2009’s] profit… due to the high costs and expenses incurred at its initial stage of operation,” states the firm.

Also adversely affecting Unicom’s 2009 result is the fact that it will not include profits from its CDMA arm, which was sold to rival China Telecom in October 2008.

“The discontinued operations generated a profit (net of tax) of RMB27.57 billion ($4.04 billions) for the year ended 31 December 2008, which substantially increased the profits of the Company [in 2008],” said Unicom.

Unicom is due to report its full-year 2009 results next month.

This year, Unicom finds itself embroiled in a fierce 3G price war.

“The price war in China promises to be big as everyone has spent billions of dollars for new network and voice capacity has doubled,” remarks financial-services firm CLSA in a recent report.

3G competition “will likely worsen in 2010” as 3G battle has just begun, CLSA states.

“Apart from aggressive handset and pricing promotions, telcos are also competing on big marketing campaigns and distribution network expansion,” said CLSA.

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