China United Slashes CDMA Expansion After Slow Start (Update2)
By Kenneth Wong
Hong Kong, March 27 (Bloomberg) -- China United Telecommunications Corp., which owns China's first nationwide CDMA mobile-phone network, will slash planned expansion in the system by as much as half this year after demand lagged expectations.
China United had planned to add capacity for 20 million more users under the second phase of its new wireless system built on Qualcomm Inc.'s code division multiple access technology. The first stage, with space for 15 million users, cost $2.9 billion.
``We won't add 20 million,'' said Wang Yingpei, chairman of Unicom Horizon Mobile Communications Corp., the subsidiary that built the network. ``It could be just over 10 million, but we're still trying to come to a final decision.''
The statement is the first official comment by China's second- biggest mobile-phone operator on what it plans to do after its Hong Kong-listed China Unicom Ltd. unit signed up less than 500,000 people in the first two months of CDMA operations in 12 wealthier provinces where it operates. That was less than 5 percent of Unicom's implied target, based on plans for 7 million subscribers by year end.
China United, which operates in the rest of China, hasn't disclosed its CDMA subscriber numbers.
Grand Vision
Plans to scale back expansion appear to blur China United's grand vision of building a CDMA network to handle 50 million users by 2003. The lowered sights also may cool the urgency for China United's planned domestic share sale, estimated to be valued at more than $1.4 billion. The sale, targeted for the first half of this year, was aimed at raising money to finance CDMA expansion.
CLSA Ltd. analyst Edison Lee estimates the smaller expansion will cost $400 million, or just a fifth of the equipment costs of the first phase.
``The parent will probably find itself under less pressure to sell shares to finance the network upgrade,'' Lee said.
He said the parent's reduced need to raise funds may open the way wider for China Unicom to complete its own plans to raise money to buy more phone networks from China United.
China Unicom shares rose as much as 1.4 percent to HK$7.35 today. The stock has dropped 17 percent since it began CDMA service on Jan. 8, compared with a 9 percent decline in the benchmark Hang Seng Index.
Upgrading
Under the revised target, China United will add capacity only by upgrading its network to a faster version of the CDMA standard, which Korea adopted last year. It won't buy more equipment for the current CDMA95A standard, Wong said in a telephone interview.
Test trials for so-called CDMA2000-1X, which transmits signal 15 times faster than the current CDMA standard, are going on in 10 Chinese cities, including Beijing, Shanghai, Guangzhou and Chengdu, Wang said. Faster services, such as music and data download and video conferencing, will be commercially available as early as third quarter, he said. CDMA2000-1X raises network capacity for voice calls by as much as 60 percent, according to Motorola Inc.
Unicom had 448,000 CDMA users in February. At that rate, it will miss its 7 million target for this year and a more modest 4 million target set by Qualcomm. In the second quarter, the company is committed to leasing capacity for 4 million CDMA subscribers from the parent in the 12 provinces where it operates. The company may say today how much capacity it will lease in the second half of the year when it announces 2001 earnings.
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