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If the rumored Chinese telecom’s market restructuring aligns China Unicom as a CDMA-only mobile operator, this weak second player may be able to fully leverage its potential to achieve network efficiencies and drive profitability. Dropping their GSM network would allow the operator to focus on its highly profitable CDMA network and reduce direct competition with market giant China Mobile. Furthermore, China Unicom will have a 3-6 month head start in deploying 3G services in markets where there is sufficient market demand to adopt such services, giving it a competitive advantage.
China Unicom’s prospects will improve if it is able to exploit its inherent advantages and not be forced to compete directly with the market power of China Mobile. While GSM makes up the bulk of China Unicom’s revenues, it also incurs a much higher subscriber acquisition cost to compete against China Mobile. Additionally, China Unicom’s CDMA network earns ARPUs that are at least 100% higher than GSM, but has yet to build a critical mass to generate network efficiencies.
Regardless of any restructuring outcome, China Unicom has continued to strengthen its CDMA business by unifying its CDMA1x networks under one consistent brand, “Uni,” and introducing high data traffic services. Importantly, the Worldwind service introduced in August 2004, with handset prices exceeding US$500, China Unicom hopes to attract new and migrate high end customers on GSM to CDMA 1x. China Unicom is positioning its data business on heavy traffic applications such as Location Based Services, Mobile Internet, Mobile Email, and Information Services. These efforts will be rewarded when a 3G license is available and they are able to fully utilize the network capabilities.
As of December 2004, China Unicom managed to increase the proportion of CDMA1x subscribers to total CDMA subscribers from only 8% in 2003 to 31%, proving that China Unicom is gradually generating demand for higher traffic services under the Uni portfolio of services. At the end of 2004, only 1.2% is CDMA-based mobile internet subscribers. With successful trials of CDMA2000 1x EV-DO trials in Beijing and Tianjin completed with data throughput speed nearing 2.4Mbps and a shorter time to market, China Unicom has potential to capitalize on the 3-6 months head start against rivals China Mobile and a new entrant to increase mobile internet subscribers.
Read more about China Unicom in the latest issue of Pyramid Research's Asia-Pacific Market Perspective.
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