China Unicom (CHU), the second largest wireless service provider in China, will offically commence the commercial roll-out of its 3G wireless services on Sept. 28, 2009 across 285 cities in China. The company will also offer nine 3G bundled service packages with monthly price ranging from RMB 98 ($14.34) to RMB 886 ($129.68).

Following the overhaul of the Chinese telecom industry, the Chinese government 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 launched commercial trials of its 3G services in 56 cities (including Beijing and Shanghai) in May 2009 and subsequently extended that to 44 more cities. The company also initiated commercial 3G trials in 168 more Chinese cities in August 2009. China Unicom has already amassed 350,000 3G users across its network footprint.

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 in one year after service launch. To facilitate the deployment of its 3G WCDMA network, China Unicom has entered into a $700 million agreement with Ericsson (ERIC). The company targets to capture one third of the Chinese 3G market by 2010.

China Unicom contends with an increasingly competitive domestic wireless market. 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. Moreover, China Mobile is investing heavily on 3G network build-outs and plans to cover 238 Chinese cities in 2009.

Expansion of the 3G network coverage represents a key element in China Unicom’s business strategy as higher speed offerings and advanced data applications are expected to boost revenue per user. Leveraging its 3G WCDMA network, the company is set to launch iPhone 3G in fourth-quarter 2009 under a three-year agreement with Apple Inc (AAPL). Moreover, China Unicom plans to roll out several 3G handsets following the commercial 3G service launch.

While we remain bullish on China Unicom’s future growth prospects in the 3G wireless market, the associated expenditures for nationwide deployments are likely to impact short-term profitability, tighten free cash flow and impact margins.
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