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UPDATE 1-China Unicom sees flat profit growth on costly sales and marketing
February 27, 2014 / 10:36 AM / 4 years ago

UPDATE 1-China Unicom sees flat profit growth on costly sales and marketing

* China Unicom Q4 profit up 0.6 pct y/y to 2.04 bln yuan

* Q4 profit miss analyst estimates of 2.43 bln yuan

* Sales and marketing costs for 2013 up 22.7 y/y

* Full-year profit up 46.7 percent

* Subsidies, capex will remain little changed in 2014 (Adds details on results, competition and 4G networks)

By Yimou Lee and Paul Carsten

BEIJING, Feb 27 (Reuters) - China Unicom (Hong Kong) Ltd , the country’s second-biggest mobile carrier by subscribers, on Thursday reported flat net profit growth in the fourth quarter compared to the year before, ending a nearly three-year run of accelerating growth as sales and marketing costs soared.

The company’s net profit barely rose to 2.04 billion yuan ($333.07 million) for the October-December quarter from 2.02 billion yuan the previous year, missing estimates of 2.43 billion yuan based on Reuters calculations from a Thomson Reuters SmartEstimate poll of 32 analysts.

Sales and marketing expenses were 42.3 billion yuan, up 22.7 percent compared to 2012.

An aggressive push to roll out 4G services by rival China Mobile Ltd, the world’s biggest carrier which signed a deal in December with Apple Inc to distribute its iconic iPhone, has forced China Unicom to spend heavily on marketing and invest in 4G in the world’s biggest smartphone market in order to remain competitive.

China Unicom now hopes the government will release licenses for the 4G FDD-LTE standard the company will mainly use for its 4G network, Chairman and Chief Executive Chang Xiaobing told a press conference in Hong Kong on Thursday.

This will allow the company to compete more strongly with China Mobile, whose network is built on the 4G TD-LTE standard, which China’s government issued licenses for in December.

The growing ubiquity of smartphones in China, with 500 million mobile Internet users as of December, is threatening revenues for China’s carriers as “over the top” mobile messaging applications like Tencent Holdings Ltd’s WeChat, known as Weixin in China, replace lucrative SMS messaging.

China Unicom said capital expenditure for this year won’t be more than the 80 billion yuan the company had originally planned for 2013, said Lu Yimin, executive director and president of the company. Last year’s capital expenditure ultimately totaled 73.46 billion yuan.

Smartphone subsidies will be little changed in 2014 from last year, Lu said. These subsidies are used to entice customers and weigh heavily on the revenues of all three of China’s carriers.

China Unicom’s revenue for the fourth quarter was 74.9 billion yuan, according to Reuters calculations, up 17.1 percent on the previous year.

China Unicom’s average revenue per user (ARPU), a closely watched industry barometer, continued its steady decline for more lucrative 3G subscribers, who account for almost half of the company’s 284 million subscribers.

ARPU for 3G was down to 75.1 yuan for all of 2013 from 86.1 yuan a year earlier. ARPU for all subscribers was 48.2 yuan.

China Mobile’s ARPU was 66 yuan for the first nine months of 2013. Third-place China Telecom Corp Ltd did not disclose ARPU for that period, but for the first six months of last year ARPU was 54.3 yuan.

The results were released after the market closed. China Unicom shares ended barely changed compared with a 1.7 percent rise in the benchmark Hang Seng Index.

$1 = 6.1248 Chinese yuan Editing by Miral Fahmy and Matt Driskill

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