China Unicom Net Misses Estimates on Adding Low-End Users

China Unicom (Hong Kong) Ltd. (762), the nation’s second-largest mobile-phone company, had third-quarter profit that missed analysts’ estimates as a push to add users with low-cost phones boosted costs faster than sales.

Net income rose 27 percent to 2.02 billion yuan ($324 million), from a restated 1.59 billion yuan a year earlier, based on figures derived from nine-month earnings the Beijing- based company reported yesterday. That compares with the 2.21 billion-yuan median of seven analysts’ estimates in a Bloomberg News survey.

Chairman Chang Xiaobing turned to low-cost smartphones priced at 1,000 yuan or less, like the V889M from ZTE Corp. (000063), after the company in March lost the advantage of being the only Chinese carrier to offer Apple Inc. (AAPL)’s iPhone with a service plan. Subscribers with cheaper phones make less use of data. Also campaigns to lure price-conscious users such as students can be costly, according to Anand Ramachandran, a Hong Kong- based analyst at Barclays Plc.

“It appears the miss was driven by higher selling, marketing” and administrative expenses, Lisa Soh, a Hong Kong- based analyst with Macquarie Group Ltd., said in an e-mail. The expenses, which increased faster than revenue, “disappointed,” she said.

Revenue rose 16 percent to 63.5 billion yuan in the third quarter, compared with the median estimate of 63 billion yuan in the Bloomberg News survey.

Unicom’s American depositary receipts fell 2.7 percent to $16.82 in New York trading yesterday, bringing their decline this year to 20 percent. Each ADR represents 10 underlying shares of common stock.

Costs Jump

Unicom (UNCK) faced “keen market competition” to speed user growth in the period, the company said in the statement. As a result, selling and marketing expenses surged 23 percent to 25.4 billion yuan in the first nine months, it said. Its cost of telecommunications products sold jumped 48 percent to 33.8 billion yuan for the nine months, the carrier said.

Unicom had 66.9 million 3G subscribers at the end of the third quarter, lagging behind the 75.6 million for market leader China Mobile Ltd., according to data the companies released this month. The smaller operator, which also offers fixed-line broadband Internet services, had a mobile customer base of 229.5 million, or about a third of China Mobile’s 698.5 million.

China Mobile’s third-quarter net income climbed 1.3 percent to 31.1 billion yuan, based on figures derived from nine-month earnings the company reported on Oct. 22. Profit (941) was projected at 30.8 billion yuan, according to the median of seven analysts’ estimates in a Bloomberg News survey.

China Telecom Corp., which began selling the iPhone on March 9, is scheduled to report earnings on Oct. 29.

To contact Bloomberg News staff for this story: Edmond Lococo in Beijing at elococo@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

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