China Unicom standing at crossroads
Author: (LI WEITAO)
October 29,2002
Enhanced hook-ups with cellphone makers and aggressive promotional offers are expected to boost China Unicom's CDMA (code division multiple access) business.
Unicom, however, must do more in the long term to expand distribution channels and enrich applications of the mobile services to sustain growth of its market share, analysts said.
Dancing with makers
China Unicom, the country's No 2 mobile operator, has recently entered partnerships with terminal manufacturers.
Shenzhen-based ZTE Corp announced last week it won the bid to supply China Unicom with 100,000 2.5G (2.5 generation) CDMA1X handsets before year's end, and to deliver another 900,000 in the first quarter of 2003.
The deal came after South Korea's SK Teletech announced last Monday it had clinched a deal to supply 1 million CDMA 2000-1X colour display handsets to Unicom by March.
Unicom previously placed orders to buy 700,000 CDMA1X handsets from Samsung, and 500,000 from LG.
Financial details of those deals are not available.
"Alliances between Unicom and handset makers will help its much-anticipated CDMA1X services sidestep the flop of China Mobile's WAP (wireless application protocol) promotion," said Han Fei, an analyst with CCW Research.
Failure of the WAP model was caused mainly by a lack of terminals and applications, said Lu Xiangdong, vice- president of China Mobile.
"The evolution and restructuring of the mobile value chain connecting operators, application developers, handset makers, content providers and users would ... benefit all parties," Han told Business Weekly.
Unicom is expected to launch its CDMA1X services in March next year.
Industry insiders say Unicom has completed deployment of its CDMA1X networks in Beijing, Shanghai and Guangzhou.
Analysts suggest Unicom must build up its own distribution channels.
"Tie-ups (between Unicom and handset makers) are not real alliances," said Edward Yu, president of Analysys Consulting.
"Manufacturers will still hold a wait-and-see attitude towards the new mobile services.
"Unicom must expand its distribution channels to ensure success of the CDMA1X services," Yu said.
Subsidies also hurt
To meet a self-imposed target of 7 million subscribers by year's end, Unicom is now focusing on the mass market.
It has initiated various incentives - including handset subsidies to speed up adoption of CDMA services.
"Handset subsidies are right for China Unicom in the short term, considering its ... competition with China Mobile," Yu said.
CDMA is becoming increasingly popular, due largely to the subsidies. Unicom announced on September 25 it had 3 million CDMA subscribers; last week, it said it had 4 million.
China had 190 million handset users by the end of September, indicate Ministry of Information Industry (MII) statistics.
Analysts are cautiously optimistic about the benefits of Unicom's indirect handset subsidies.
"If it continues to subsidize, the target of 7 million subscribers may be realized," Yu said.
"The problem is, how long can the subsidies sustain," he added, suggesting the plan could drain Unicom's cash.
Unicom has spent an estimated 1 billion yuan (US$120 million) in handset subsidies.
The average subsidy per CDMA handset is 1,600 yuan (US$193), Yu said.
Analysts suggest Unicom must do more to enrich its mobile services to attract users.
"Applications will play a decisive role in snaring users ... from GSM (global system for mobile communications) to CDMA network," Yu said.
Analysts predict the next boom in the handset-replacement market will occur in late 2004 or early 2005.
"As the market for new users will be close to saturation and the next boom for replacement handsets is two to three years away, sales of mobile phones will shrink and development of applications will become a major task for phone makers and mobile operators," Han said
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