Weak CDMA numbers belie broad China mobile growth
By Tony Munroe and Daisy Ku, Reuters
20 June 2002
Both Unicom and China Mobile report steady gains in May.
China Unicom Ltd's struggling CDMA cellular network added fewer users in May
than in April, figures posted on Thursday by the carrier showed, further punishing
shares in the number-two mainland mobile firm.
However, broader growth in China's mobile sector saw little sign of abating, as both
Unicom and rival China Mobile (Hong Kong) Ltd reported steady overall user gains
in May.
Shares in China Unicom, which have been bludgeoned in part over CDMA worries,
tumbled 2.96 percent to HK$6.55 by the midday close after touching HK$6.45,
their lowest level since listing two years ago.
Thursday's numbers confirmed worries about the slow uptake of CDMA, as well as
fears that Unicom must increase incentives or subsidise handsets if it hopes to
meet its user targets.
Still, the Beijing-based carrier said on Thursday it remains confident it can meet its
CDMA subscriber goals of 4.6-4.7 million for the overseas-listed firm.
"We are confident that we can achieve the target," Shi Cuiming, Unicom executive
director and executive vice president, told reporters in Hong Kong, noting that
CDMA sales in May were slowed in part by the weeklong labour day holiday.
He said the company expects its CDMA business will accelerate in August, as
handset prices continue to fall, new models come to market, and a new CDMA
sales force of commission-based contractors pays dividends.
The market, however, remains jittery.
"The CDMA growth rate is a concern for the stock," said Y.K. Chan, investment
strategist at CEF Securities in Hong Kong.
Slow start
China Unicom's CDMA network, which it launched in January, added just 83,000
users in May, a 12 percent increase from the previous month that brings the total in
the overseas-listed carrier's 12 provinces to 785,000 subscribers.
In April, China Unicom added 134,000 CDMA customers.
On its GSM network, China Unicom added 995,000 users in the month of May, up
3.2 percent from April, bringing its GSM total to 32.125 million users. It added
909,000 GSM users in April.
Unicom's Shi said investors should not focus only on CDMA: "The main business
of Unicom is still GSM ... our business is still growing and EPS (earnings per
share) is still growing."
China Mobile, meanwhile, said it added 1.83 million customers, or 2.4 percent, in
the month through May 20. The figure slightly tops the 1.81 million users added the
previous month, and is roughly in line with additions in recent months.
Many company watchers say overseas-listed China Unicom's goal of enlisting
roughly 4.6-4.7 million CDMA users in its 12 provinces by year-end is overly
ambitious.
"They're either going to have to really push the handset subsidy program across
the country to get that going or else they're going to have to offer a significant
number of free minutes," said Nomura International analyst Richard Ferguson, who
has "sell" ratings on both carriers.
In search of big spenders
China Unicom, the country's lower-cost carrier, positions CDMA as a high-end
service, a strategy it has found difficult given the dearth of handset choices and few
differentiators that might lure big-spending corporate users away from China
Mobile.
The carrier has offered promotions in specific markets, and has said it will consider
going after mass-market users in order to accelerate growth.
"Ultimately, what it shows is that CDMA doesn't work at the upper end of the
market, which is dominated by China Mobile," Nomura's Ferguson said.
However, Unicom's Shi assured that the company does not plan to use its CDMA
service to start a cellular price war in China.
China Unicom's CDMA service now costs 0.40 yuan (US$0.048) per minute -- the
same as China Mobile's basic service -- on top of a 50 yuan per month contract
charge. Unicom's basic GSM service is 10 percent cheaper. Unicom does not offer
pre-paid CDMA service, which is popular on China's two GSM networks.
Shi said Unicom, which currently leases CDMA network capacity from its parent
for four million subscribers, will not sign on for additional capacity in the third
quarter, and is undecided about its fourth quarter capacity needs.
Earlier this month, China Unicom's state-owned parent said the carrier had
surpassed the one million subscriber mark nationwide for CDMA subscribers. Of
those, about 600,000 were new users and 400,000 had been absorbed from an
older CDMA network called Great Wall.
Tortured history
China Unicom last year built its network based on Qualcomm Inc's CDMA (code
division multiple access) standard after years of grappling between Beijing and
Washington.
While many industry insiders say CDMA is a more efficient technology than the
European GSM standard that predominates in China and elsewhere, they question
the wisdom of China Unicom's building a competing network alongside its GSM
system. Beijing's decision to build the CDMA network was motivated in part by
hopes that domestic equipment makers, largely frozen out of the market when
China's huge GSM networks were built, would get a bigger share of CDMA
equipment deals.
Shares in China Mobile, battered by the sector's gloom globally as well as fears of
intensifying price competition with China Unicom, fell 0.43 percent on Thursday to
HK$23.10, lagging the 0.04 percent rise in the Hang Seng Index.
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