China Unicom hit by 3G competition

Rising handset subsidies led to a 2% year-on-year fall in profit at China Unicom (Beijing, China) for the second quarter of the year.

China’s second-biggest mobile operator reported net profit of 2.42 billion yuan ($381 million) as it increased spending on smartphones in a bid to lure more Chinese consumers on to its 3G networks.

Even so, the results were slightly better than expected, based on a poll of six analysts conducted by Reuters, due to a drop in depreciation expenses.

Rising handset subsidies led to a 2% year-on-year fall in profit at China Unicom (Beijing, China) for the second quarter of the year.

China’s second-biggest mobile operator reported net profit of 2.42 billion yuan ($381 million) as it increased spending on smartphones in a bid to lure more Chinese consumers on to its 3G networks.

Even so, the results were slightly better than expected, based on a poll of six analysts conducted by Reuters, due to a drop in depreciation expenses.

For the first half of the year, China Unicom increased its spending on handsets by 15%, to 3.5 billion yuan, compared with the same period of 2011.

China Mobile and China Telecom have also upped their spending on device subsidies as they fight over potential 3G business.

China Mobile, the country’s biggest mobile-phone operator, increased its spending by 41%, to 12 billion yuan, while China Telecom spent 50% more than in the first half of 2011.

Despite the marketing push, just 17% of China’s 1 billion mobile-phone users have 3G devices.

One problem is that China Mobile, which has the biggest share of mobile-phone users overall, was pushed by authorities into adopting the TD-SCDMA network standard, barely used outside China.

The commercially unproven standard was plagued by technical glitches on launch and remains incompatible with the world’s most popular handsets, including Apple’s iPhone.

Just 10% of China Mobile’s customers use 3G phones, compared with 27% of China Unicom’s and 37% of China Telecom’s.

In the meantime, operators have been struggling to raise average revenue per user, a keenly watched industry metric, as they fight over new business.

China Telecom’s ARPU has remained unchanged between 2011 and the first half of 2012, at 52.4 yuan per month, while China Mobile’s dropped by 6% to 67 yuan.

China Unicom managed to increase ARPU to 48.1 yuan from 47.3 yuan in 2011.