China Unicom Launching 3G Service

By Zacks Equity Research
On 4:47 pm EDT, Wednesday September 30, 2009

Second-largest Chinese wireless carrier China Unicom (NYSE: CHU - News) will officially launch commercial 3G wireless services on Oct 1, 2009 across 285 Chinese cities. This coincides with the company's launch date of Apple Inc.'s (NasdaqGS: AAPL - News) iPhone in mainland China. China Unicom initially announced that it will commence commercial 3G service roll out on Sep 28, 2009.

China Unicom launched commercial trials of its WCDMA technology-based 3G services in 56 cities (including Beijing and Shanghai ) in May 2009 and subsequently extended that to 44 more cities. The company also initiated commercial 3G trials in 168 more Chinese cities in August 2009.

To facilitate the deployment of its 3G WCDMA network, China Unicom has collaborated with Ericsson (NasdaqGS: ERIC - News) under a $700 million deal. The company has also announced that it will adopt a uniform 3G tariff package in an effort to reduce prices for its 3G customers. Moreover, China Unicom will roll out several 3G handsets following the commercial 3G service launch.

China Unicom will spend RMB38.7 billion (US$5.6 billion) to develop its 3G business in 2009 and expects to achieve 74% penetration of the Chinese population by the end of the year. The company plans to invest RMB800 million (US$117 million) for 3G network deployments in Shanghai.

China Unicom operates in a highly competitive environment and faces stiff competition from its peers China Mobile (NYSE: CHL - News) and China Telecom (NYSE: CHA - News), who are also aggressively preparing for nationwide commercial launches of their respective 3G services.

Expansion of 3G services represents a key element in China Unicom's future growth as high-bandwidth advanced data applications are expected to boost revenue per user through increased usage.

While we remain bullish on China Unicom's prospects in the domestic 3G wireless market, the high level of capital expenditure associated with aggressive network deployments is expected to constrict margins and free cash flow moving forward.