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More 3G Users Join China Unicom

Zacks Equity Research

China's second largest mobile operator China Unicom (CHU) added 3.3 million cellular subscribers in April, down 5.7% from the prior month. This takes the company’s total customer base to 212.75 million.

The company’s GSM subscriber base expanded to 160.97 million with net additions of 0.34 million customers, while its 3G subscriber base increased to 51.78 million with net additions of 2.92 million.

The 3G subscriber base is growing rapidly, particularly driven by Apple Inc.’s (AAPL) iPhone sales. Additionally, China Unicom is focusing more on improving its 3G data surfing service, and offering cheaper handsets and low cost services to win new customers. These efforts are drawing more 3G subscribers, eventually leading to higher average revenue per user.

Despite the loss of exclusive hold on iPhones to China Telecom Corp. (CHA), the company’s 3G subcriber growth remained encouraging in April realtive to its major rivals. China’s mobile leader China Mobile (CHL) attracted only 2.3 million 3G subscribers while China Telecom added 2.01 million to its 3G customer base.

China Unicom expects its 3G subscriber base to reach 90 million by the end of the year, taking the 3G service revenue to RMB 70 billion ($11.1 billion) from RMB 40 billion last year.

Coming to the fixed-line business, the company is poised to benefit from expansion and speed enhancement of fiber optic service in its broadband business. China Unicom added 0.58 million broadband customers in April, bringing the total number to 58.87 million.

But the company is experiencing significant declines in its local access lines due to the impact of the ongoing fixed-to-mobile substitution. Erosion in the fixed-line subscriber base continues with approximately 0.01 million customers lost in April, taking the total number to 92.34 million.

We are maintaining our long-term Underperform recommendation on China Unicom. The stock retains a Zacks #4 (Sell) Rank for the short term (1–3 months).

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