* China Unicom in 3-yr deal to sell iPhone in China
* Unicom H1 net profit falls 45 pct, ahead of forecasts
* H1 Mobile unit's avg monthly ARPU 41.7 yuan vs 43.6 yuan
* EBITDA margins could be hurt by potential iPhone
By Kirby Chien and Joanne Chiu
BEIJING/HONG KONG, Aug 28 Apple's iPhone will
go on sale later this year in China, the world's largest mobile
market, but its partner China Unicom (0762.HK) may find selling
the phone carries its own burdens.
China's No. 2 mobile carrier is looking at the popular
iPhone as a new gateway to profit, after posting a
better-than-expected 45 percent fall in first-half profit on
Unicom's announcement on Friday ended months of rumours
about a tie-up with Apple (AAPL.O), which has been trying to
bring the iPhone to some of China's nearly 700 million mobile
The company did not give a price for the iPhone, but
Chairman and Chief Executive Chang Xiaobing told reporters that
it would be competitive. The company said the launch is
expected in the fourth quarter of 2009.
Unicom may have to offer substantial subsidies to reach a
competitive price, as the deal comes just a day after rival
China Telecom (0728.HK) said it would increase its budget for
handset subsidies to 37 percent of wireless revenues, from 30
"Many foreign operators have seen their EBITDA margins fall
after launching iPhones, said Marvin Lo of Daiwa Securities,
based in Hong Kong. "So I am concerned China Unicom's margins
could also come under pressure."
Unicom and rivals China Mobile (0941.HK), the world's
largest mobile carrier, and China Telecom, are all under a
margin squeeze as they are in the middle of a three-year $58.5
billion spending spree through 2011 to build their 3G
Unicom said its first-half monthly average revenue per user
(ARPU), a key indicator of profitability, for its mobile
services fell to 41.7 yuan, from 43.6 yuan a year ago.
NO PRICE DETAILS
Unicom said it bought the phones in a bulk purchase from
Apple, and would not use Apple's traditional revenue sharing
model, but did not offer any details.
The phones would not offer a Wi-Fi function, and Unicom
predicted it would eventually secure a third of China's 3G
market share, but did not provide a timeframe.
"If they don't offer any subsidies, the price should be
around 3,000 yuan ($439) per phone," said Liu Bin of Macquarie
"I estimate in the first year they can get between 1.5
million and two million subscribers," said Liu.
Many Chinese fans of the iPhone, however, are already using
unlicensed iPhones in conjunction with existing GSM networks.
"The financial impact of selling the iPhone is limited for
China Unicom," said Yuanta Securities in a report dated Aug 21,
citing the small target market for expensive smart phones in
China, the absence of a Wi-Fi function, and handset subsidies.
Unicom will sell both the 2G and 3G iPhone models.
Unicom made the announcement as it said its profit in the
first half of the year fell 45 percent to 6.62 billion yuan
($969 million) from 12.09 billion yuan. Seven analysts polled
by Reuters had forecast a profit of 6.2 billion yuan.
The company is also struggling to integrate fixed-line
operator China Netcom, which it absorbed last year as part of
an industry-wide restructuring designed to increase competition
by creating three major carriers.
Unicom is in the middle of a two-year $14.6 billion
spending plan to build its wireless network, while spending is
backloaded for this year as the 3G rollout is scheduled for the
China Unicom shares rose 23.9 percent in the second
quarter, beating the 20.9 percent gain by China Telecom and
15.0 percent rise in China Mobile.
However, all three lagged the 35.8 jump by Hong Kong's
China enterprises index .HSCE over the same period.
(Editing by Ken Wills and Rupert Winchester)