China Unicom’s 3G venture remains on track
China Unicom Hong Kong Limited (CHU), the second largest wireless service provider in China, has reportedly commenced commercial trials of its 3G wireless services in an additional 44 Chinese cities, thereby increasing its 3G coverage to a total of 100 cities.
Following the recently concluded restructuring of the Chinese telecom industry, the Ministry of Industry and Information Technology of China issued three 3G licenses in early 2009 with China Unicom being awarded the license for WCDMA, a widely adopted 3G technology with approximately 70% share of worldwide 3G subscribers.
China Unicom has already launched commercial trials for its 3G services in 55 cities (including Beijing and Shanghai) in May 2009, and plans to cover 284 cities by the end of the year with 74% penetration of the Chinese population. The company has earmarked RMB38.7 billion (US$5.6 billion) to develop its 3G business in 2009 and aims to lure 30 million users one year after the launch.
China Unicom is currently bidding for procuring WCDMA technology and equipment and has recently collaborated with Spain’s Telefonica (TEF) for developing 3G services.
The competitive scenario in the Chinese wireless market has become more intense with the distribution of 3G licenses as the company’s peers — China Mobile (CHL) and China Telecom (CHA) are also aggressively preparing for nationwide commercial launch of their respective 3G services.
China Telecom is currently leading the 3G deployment process with a target of reaching approximately 500 cities by the end of 2009. Leveraging its 3G WCDMA network, the company is also well positioned to launch Apple Inc’s (AAPL) iPhone 3G (expected in October 2009), which may provide a significant competitive edge over its principal rival China Mobile, whose indigenously developed 3G network currently does not support the revolutionary handset.
While we remain bullish on China Unicom’s future growth prospects in the 3G wireless market, the associated expenditures are likely to impact short-term profitability, tighten free cash flow and impact margins. Consequently, we maintain our Hold recommendation on China Unicom.
Read the full analyst report on “CHU”
Read the full analyst report on “TEF”
Read the full analyst report on “CHL”
Read the full analyst report on “CHA”
Read the full analyst report on “AAPL”
Zacks Investment Research
