A China Unicom (Hong Kong) Ltd "Wostore" in Beijing. Subsidies to attract 3G users cost the company 1.9 billion yuan in the first quarter. [Photo / China Daily]

Effect of phone subsidies result in missed first-quarter expectations

BEIJING - China Unicom (Hong Kong) Ltd, the nation's second-largest mobile phone company, posted first-quarter profit that fell more than analysts' estimates as it subsidized third-generation (3G) handsets to attract users.

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Net income fell 86 percent to 166 million yuan ($25.4 million), from 1.21 billion yuan a year earlier, the Beijing-based company said in a statement on Tuesday. That missed with the 1.13-billion-yuan median of four analysts' estimates in a Bloomberg News survey.

Subsidies to attract 3G users cost Unicom 1.9 billion yuan in the first quarter, said the company, the only carrier in China that offers Apple Inc's iPhone with a service contract.

Even with the exclusive deal, subscriber numbers to its high-speed, 3G-network service at the end of March were about 31 percent lower than the market-leader China Mobile Ltd.

The effect of subsidies were "far worse" than projected, said Eric Wen, an analyst at Mirae Asset Securities Co in Hong Kong. "If you see the increase in other operating expenses, it is mostly handset subsidy."

Unicom fell 2.2 percent to close at HK$15.76 ($2.03) in Hong Kong trading before the announcement. The shares have gained 42 percent this year.

The company expects earnings for the first half of this year to be "substantially different" from the same period a year earlier, Unicom said in a statement.

Revenue rose 21 percent to 49 billion yuan in the first quarter, beating the median estimate of 46.9 billion yuan in a Bloomberg News survey.

The company posted losses of 2.04 billion yuan from telecommunications products in the first quarter after costs more than quadrupled to 7.18 billion yuan, Unicom said.

The cost of subsidies for 3G handsets was 1.90 billion yuan, up from 100 million yuan a year earlier, the company said.

China Unicom's 3G subscriber numbers increased 31 percent to 18.5 million at the end of March, compared with 14.1 million at the end of December. The company still lagged behind China Mobile's 27 million 3G users, according to data the companies released last week. Unicom's total mobile customer base of 320.9 million was just over half of China Mobile's total of 600.8 million.

China Unicom's President Lu Yimin said last month that the company aims to add 25 million new 3G subscribers this year.

On April 20, China Mobile, the world's biggest phone carrier by users, posted first-quarter profit that increased 5.4 percent to 26.9 billion yuan. Sales rose 8.3 percent to 118.2 billion yuan.

China Telecom Corp, the country's biggest fixed-line carrier and third-largest mobile phone company, will report earnings on April 28.

Bloomberg News