UPDATE 1-China Unicom 3G users rising, but costs weigh

Tue Nov 3, 2009 4:22am EST

* 3G marketing expenses, subsidies could hurt margins

* Over one million 3G users signed up

* iPhone will boost Q4 revenues, but no details (Adds details, background, changes dateline)

By Joanne Chiu and Kirby Chien

HONG KONG/BEIJING, Nov 3 (Reuters) - China Unicom (0762.HK), the country's No.2 mobile carrier, said on Tuesday that it had already signed up more than 1 million 3G subscribers, but analysts said that handset subsidies and marketing costs could weigh on profit margins.

Unicom Chairman Chang Xiaobing and executives said more than 1 million 3G subscribers had been signed up and that the launch of Apple's (AAPL.O) iPhone would boost revenue in the fourth quarter, but did not give any details.

"We are satisified with iPhone sales so far, and we aim to have an additional 1 million new 3G subscribers each month in the near future," he said.

All three of China's telecoms carriers have been under pressure since late last year when they initiated a $58.5 billion plan to build 3G networks capable of carrying multimedia content to the world's largest wireless market. [ID:nPEK343905]

Unicom and rivals China Mobile (0941.HK), the world's No.1 mobile carrier, and China Telecom (0728.HK) are launching 3G services this year, which analysts say will increase competitive pressure to attract subscribers to the more lucrative service.

Rising competition and expenses associated with the 3G rollout was a prime reason that all three carriers reported disappointing quarterly earnings last month.

"We expect the EBITDA margin to drop from 39 percent to 36 percent in the fourth quarter on higher handset subsidies and competition." Tiffany Feng at Guotai Junan said, referring to earnings before interest, tax, depreciation and amortisation.

While sales of the iPhone would boost revenue, the company would also incur expenses for handset subsidies and advertising, which could pressure profit margins, Chang Xiaobing told reporters after a company meeting.

"Marketing expenses and network construction costs increased in Q3 from Q2 and this situation will continue for a time." said Tong Jilu, vice-president and chief financial officer.

In August, Unicom signed a three-year non-exclusive deal to sell Apple's popular iPhone in China, aiming to boost its launch of 3G services this year, but analysts expect the pricey handset will eventually require more subsidies to boost sales.

Unicom said it had already signed up 5,000 iPhone subscribers.

The company said last week that profit declined in the July-September period from the previous quarter as average revenue per user, or ARPU, a key measure of performance, slipped to 41.6 yuan from 41.7 yuan in the first half.

Unicom is building its 3G network with the world's most mature standard, WCDMA, but is struggling to integrate new businesses after last year's industry shakeup that saw it combined with another company to take on its current form. ($=6.83 yuan) (Reporting by Joanne Chiu and Kirby Chien; Editing by Chris Lewis)

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