Solid earnings seen for China Unicom

China Unicom, the nation's second largest mobile operator, had 12.77 million subscribers at the end of 2000

In this story: China Unicom vs. China Mobile On-again, off-again CDMA plans Price war RELATED STORIES, SITES

By Staff and wire reports

HONG KONG, China -- China Unicom, the nation's second largest mobile operator, is expected to report an 88 percent increase in profits to $185 million.

The mainland mobile phone carrier went public last summer, earning $101.5 million in 1999. The group will unveil its full-year results for 2000 on Tuesday.

Shares in both Unicom and its rival, number-two China Mobile, have tumbled in recent weeks after both announced plans for a new pricing scheme.

Projections for a Unicom earnings surge come despite lower revenue per user.

ING Barings predicts that China Unicom, which had 12.77 million subscribers at the end of 2000, will post a 23 percent decline in average revenue per user (ARPU) to $15.6 a month, as a broader section of China's population adopts mobile phones.

China Mobile is expected to report a 29 percent decline in ARPU to $27.3 when it releases results on April 9, says ING Barings.

China Unicom vs. China Mobile

Unlike pure-play wireless firm China Mobile, China Unicom also has fixed line and paging operations, which, along with its number-two market position, make it less attractive to some investors than China Mobile.

However, some industry watchers say one of China Unicom's strategic advantages is the fact that it is the only integrated telecom provider in Mainland China.

JS Cresvale International analyst Craig Stephen recently recommended that investors switch from China Unicom into China Mobile, as Unicom faces greater regulatory risk.

In defense of Unicom, other analysts say since the group participates in more than one telecom sector, it is naturally exposed to more risk.

ABN Amro's Joe Locke says investors should ignore suggestions of increased regulatory risk for Unicom's operations in China.

"They are one of the most investor-friendly regulators in the world. They get a bad rap," says Locke.

"Regulatory risk for the sector is increasing globally. It's sector wide and not particular to China."

On-again, off-again CDMA plans

However, most analysts agree that uncertainty arises from expectations that China Unicom will build a massive network based on the CDMA standard developed by Qualcomm.

China's cell phone carriers now mostly operate GSM-standard networks. Some analysts have worried that China's Unicom's on-again, off-again plan to build a CDMA network is less a commercial decision than a political one tied to China's expected entry into the World Trade Organization.

"I don't like it all," says Nomura's Richard Ferguson. "I think it's more than anything a political decision."

Last week, China Unicom's parent said its three-year investment in a CDMA network would total $8.5 billion, according to official state media.

Price war

Shares in both firms have tumbled in recent weeks after fears of a price war were triggered when China Mobile unveiled a "bucket" pricing plan, which lets customers choose from a menu of six plans offering a fixed number of monthly calling minutes.

China Unicom rose 1.82 percent on Friday to close at HK$8.40, just above a 52-week low of HK$8.10 and well off a high of Hk$22.

China Mobile shares dipped 0.29 percent to HK$34.30, above a year-low of Hk$32.80 but well below a high of HK$77.25 achieved when global telecom valuations soared last year.

Reuters contributed to this report.

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China Unicom Ltd.
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