China Unicom’s Earnings Grow On Lower Costs, Rising Wireless Subscriber Base

China Unicom (NYSE:CHU), the second largest Chinese wireless carrier, published its full-year 2018 results on March 13. The company’s net profits for the year grew almost four-fold to RMB 10.2 billion ($1.52 billion), driven by a growing mobile subscriber base as well as lower tower usage fees and reduced handset subsidy costs. Below we take a look at some of the trends that drove the company’s wireless business.

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Subscriber Base Expands On 2I2C Initiative

China Unicom’s mobile business added a total of about 31 million subscribers over the last year, taking its total subscriber base to 315 million. The growth was driven by the company’s increasing emphasis on online sales under its 2I2C initiative, which is seeing the company cooperate with Internet giants Baidu, Alibaba, and Tencent for new customer acquisitions. This sales model is helping the company better target customers while reducing the resources it allocates to physical retail outlets. The company noted that its 2I2C driven subscribers reached 94 million, marking a net addition of 44 million.  Separately, the company has also been offering products targeted at heavy data users, and this has been increasingly popular in China.

However, the China Unicom’s wireless ARPU declined by about 5% year-over-year, coming in at RMB 45.7 ($6.81), driven by the government’s move to limit data tariffs and cut roaming and long-distance charges. This came despite the fact that data usage per handset more than doubled, with 4G penetration in the company’s user mix standing at 70%, up from around 61% a year ago.

Further Expanding 4G Network, Carrying Out 5G Trials

China Unicom has been focusing on improving its network – which was previously a key handicap – by deploying more towers, while also leveraging big data and analytics tools to identify traffic hotspots for more accurate capacity expansion. For 2019, the company has outlined capital expenditures of RMB 58.0 billion ($8.6 billion), up from RMB 44.9 billion ($6.69 billion) in 2018. The spending will focus on further increasing coverage and capacity, with greater deployment of 900 MHz LTE bands. The company has also been carrying out its 5G trials in 17 cities, noting that it would expand the trials based on results.

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