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China Unicom to Launch 4G

Zacks Equity Research

China Unicom Hong Kong Limited (CHU) has issued a tender for 50,000 LTE base stations in a bid to offer 4G services by the middle of 2014. China Unicom is the latest nationalised telecom service provider in China to enter the 4G space. The tender is expected to be completed in the first quarter of 2014.

Recently, this second largest Chinese operator won the LTE-TDD (Time Division Duplex) license. However, China Unicom wants to focus on the globally accepted FDD (Frequency Division Duplex) technology and thus plans to roll out only 20% of its network on the TDD technology.

Notably, the world’s largest mobile operator by subscriber, China Mobile Limited (CHL) has been the leader in 4G deployment and is expected to deploy 500,000 base stations by 2014. Smaller rival, China Telecom Corp Limited (CHA) is also planning to launch 60,000 base stations by 2014.

China Mobile’s plans to spend approximately $6.9 billion (RMB 41 billion) for launching 4G services in 2014 while China Unicom’s investment stands far less at $1.65 billion (RMB 10 billion), with the majority of the amount going toward W-CDMA and HSDPA upgrade.

Notably, network giant Alcatel-Lucent (ALU), and home-grown ZTE and Huawei have won a bulk of China Telecom’s 4G network contracts. It remains to be seen who wins this lucrative contract from China Unicom.   

China Unicom has been a leader in the Chinese 3G market because of the limitations faced by bigger rival China Mobile, which opted to use its own developed TD-SCDMA technology. At the end of Sep 2013, China Unicom’s 3G subscriber base reached 111.63 million.

With Internet penetration still very low, 4G will provide a huge opportunity for China Unicom. Though initially expensive, the rollout of 4G will be accretive to the company’s future growth. However, with China Mobile’s strong presence in the 4G market, we believe China Unicom needs to ramp up its infrastructural investments to gain a meaningful market share.

China Unicom currently carries a Zacks Rank #3 (Hold).

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