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Nikkei Markets

Unicom’s mobile user revenues extend slide with 5G awaited

First-quarter net profit jumps as network and operation costs slide

China Unicom’s ARPU faces further pressure in the time ahead as it faces “considerable” competitive pressures   © Reuters

HONG KONG (Nikkei Markets) – Chinese wireless carrier China Unicom (Hong Kong) on Tuesday reported an extended decline in mobile revenues per user on falling data charges and intensified competition amid a race to roll out high-speed 5G services.

Unicom’s average revenue per mobile phone user fell 14% in the first quarter to 41.2 yuan ($6.13) from a year earlier as the company, along with China Mobile and China Telecom, respond to Beijing’s call to slash costs for hundreds of millions of end users and businesses. Its mobile services revenue shrank 5.2% to 39.37 billion yuan during the quarter after the company, like its peers, cancelled mobile data “roaming” fees.

The company’s ARPU faces further pressure in the time ahead as it faces “considerable” competitive pressures, said Gin Yu, an analyst at Guotai Junan Securities in Hong Kong.

The reduction in charges comes amid Beijing’s efforts to foster a data- and technology-driven economic growth in the world’s second-largest economy. The government has urged telecom companies to reduce the average broadband fee for small and medium enterprises by 15% and data fees by 20% this year.

Unicom and its two state-owned rivals in the world’s largest mobile services market by subscribers have also been preparing for the commercial launch of fifth-generation wireless networks, or 5G, which require massive investments to create the infrastructure backbone needed to support the service. 5G is expected to bring internet speeds up to 100 times faster than speeds on 4G networks.

The nation’s three service providers are currently conducting 5G trials in preparation for a commercial launch.

While Unicom, which is controlled by Shanghai-listed China United Network Communications, didn’t provide an update on its 5G preparations in its statement on Tuesday, the company had said last month that it was keeping its dividend payout ratio for 2018 at 40% as it prepared to invest in 5G networks.

In March, the company had also said that it is accelerating the commercial rollout of voice over long-term evolution, or VoLTE, for its network. VoLTE is the main solution for voice services in the initial stage of 5G deployment, and should shorten call connect times, analysts at Nomura wrote in a report late last month.

The Chinese carrier on Tuesday reported a more than 22% jump in first quarter net profit to 3.68 billion yuan, helped by a sharp decline in network and operation expenses. The growth in profit was helped by a 19% reduction in network, operation and support expenses to 10.73 billion yuan.

To be sure, all the mobile phone operators have forecast relatively lower capital expenditure for this year, amid concerns about the delay in standardization of 5G norms.

Media reports last year said the Chinese government was considering a merger of Unicom with its state-owned peer China Telecom to speed up 5G development as well as lower the capital expenditure required for a 5G roll out. Officials at both China Unicom and China Telecom have said that they are not aware of any such plans.

Last week, brokerage Daiwa Capital Markets said it sees a 5G network cooperation deal between the two companies “as a reasonable possibility in the coming year.”

China Unicom’s parent group has been the subject of the government’s mixed-ownership reform program, aimed at improving the business efficiencies of state-owned enterprises by bringing in private investments.

A state-sponsored program in 2017 saw Shanghai-listed China United Network Communications receiving investments worth about 75 billion yuan from more than a dozen Chinese companies, including Alibaba Group Holding and Tencent Holdings, to bolster the group’s financial strength.

Unicom’s Hong Kong-listed shares fell 1.2% to HK$9.57 before the results were declared on Tuesday. The city’s benchmark Hang Seng Index ended little changed.

-- Benny Kung & Dhanya Ann Thoppil

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