China Unicom Speeds Ahead In Smartphone Race With HPSA+ Rollout

The similarities are quite stark. Not only does China Unicom (NYSE:CHU) have the second largest mobile subscriber base in China but is also the first to launch the iPhone in the country, much like AT&T (NYSE:T) in the U.S. And now, following in AT&T’s footsteps, China Unicom will become the first to roll out the faster HSPA+ 3G network in the country later this week. ^[1]

In a message to existing 3G subscribers, China Unicom announced that all phones and tablets that currently run on its network and are HSPA+ compatible will be able to access higher speeds on their devices, starting May 17th. HSPA+ is the same technology that, although not technically right, AT&T touts as 4G and markets effectively as a ploy to maintain its iPhone lead over rivals in the U.S. It looks like China Unicom is using the same playbook to not only promote 3G but also retain a competitive edge over rival China Telecom (NYSE:CHA), to whom it recently lost its iPhone exclusivity in March. As the 3G battle heats up, it needs to fend off behemoth China Mobile (NYSE:CHL) as well, which is also likely to get the iPhone soon.

See our complete analysis of China Unicom here

iPhone Helps Unicom To Profit From An Equitable 3G Mix

With close to 670 million subscribers, China Mobile is the largest wireless carrier in the world and has twice as many subscribers as China Unicom. But when it comes to 3G, the difference is not nearly as wide. As of March 2012, China Mobile had around 60 million 3G subscribers, only about 22% ahead of 49 million that subscribe to China Unicom’s 3G network. Low 3G penetration of about 15% in China is giving smaller wireless carriers such as China Unicom ample opportunity to compete on an even ground with the otherwise dominant China Mobile.

Moreover, the fact that China Mobile runs its 3G network on a proprietary homegrown TD-SCDMA standard has proved to be a big deterrent in securing smartphones that are compatible with its network. Even the iPhone, which has already been launched on the other two carriers in China, hasn’t made its way to China Mobile yet.

Taking advantage of this, China Unicom has been closing the 3G gap with China Mobile by adding at least an equal number of 3G subscribers every month. In February, it added more than 2.8 million 3G subscribers compared to China Mobile’s 2.65 million. In March, however, both added almost the same number of 3G subscribers. The iPhone 4S’ addition in January this year is definitely providing a boost to China Unicom’s 3G ambitions, and the carrier is looking to make the most of it before the popular smartphone arrives on China Mobile’s network. (see Qualcomm Paves the Way for an Apple-China Mobile iPhone Deal)

So, what happens when the iPhone arrives on China Mobile eventually? The next-generation iPhone will, in all likelihood, have LTE capabilities and currently, China Mobile is the only carrier ‘testing’ out its TD-LTE network in China. However, it is unlikely that the 4G network will be up and running in a meaningful number of cities across China any time soon. This gives China Unicom enough time to market its faster HSPA+ network as 4G and drive the sales of its iPhones and in turn promote 3G.

The reason why carriers such as China Unicom are increasingly trying to promote 3G is because most of the growth being seen is on the data side rather than on the voice side, which has reached near-saturation. Adding 3G subscribers will help China Unicom increase its ARPU levels as 3G smartphone users consume huge amounts of data as well. Higher speeds from the use of its HSPA+ network will also see users increasingly use data-intensive applications on their phones, driving data ARPUs further. Margins will be impacted by the sale of subsidized 3G phones such as the iPhone but the carriers are betting on making their money back over the term of the contractual period.

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1. China Unicom to Rollout HSPA+ 3G For Phones Next Week, TechInAsia, May 9th, 2012 [↩]