China Unicom to Sell Its Own Smartphone by Year-End

China Unicom (Hong Kong) Ltd.'s Zhang Zhijiang,
Zhang Zhijiang, head of technology department and research institute of China Unicom (Hong Kong) Ltd., speaks at the GSMA Mobile Asia conference in Hong Kong, China. Photographer: Daniel J. Groshong

Nov. 18 (Bloomberg) -- China Unicom (Hong Kong) Ltd., the nation’s only mobile operator offering Apple Inc.’s iPhone, said it will sell a smartphone developed in-house and called the “UPhone” by the end of this year.

The UPhone will run on a “totally new” operating system developed based on Linux, Zhang Zhijiang, head of the company’s technology department, said in an interview today at the Mobile Asia Congress in Hong Kong. The phone is being developed with Okwap, Huawei Technologies Co. and ZTE Corp., he said.

Chairman Chang Xiaobing has delivered four straight quarters of profit drops as he failed to capitalize on Unicom’s iPhone exclusivity and a third-generation wireless network that analysts say is superior to that of the industry leader, China Mobile Ltd. In the third quarter, Beijing-based Unicom added about 38 percent fewer 3G users than China Mobile even after rolling out the iPhone 4.

“I would view this as a negative, given that China Unicom’s W-CDMA network is supposed to have the advantage over the other telcos and because of the mature handset supply chain,” said Bertram Lai, head of research at CIMB-GK Securities in Hong Kong. “What happened to the iPhone super-high-end subscriber in China?”

The limited details released by Unicom today make the UPhone sound more like a low-end smartphone rather than a product comparable with the iPhone, said Paul Wuh, a Hong Kong-based analyst at Samsung Securities Co.

Alphabet Phone

Unicom’s Zhang said the name of the device is a deliberate reference to the iPhone and other competing products such as Lenovo Group Ltd.’s LePhone.

“U means Unicom and ‘phone’ is just for phone,” Zhang said. “We just wanted to compare with the iPhone and LePhone.”

Unicom shares gained 1.3 percent to close at HK$10.76 in Hong Kong trading. Shenzhen-based ZTE rose 3.9 percent to HK$29.35.

The UPhone is the second collaboration between Unicom and ZTE this month, after they paired up to launch the online store “WoStore” to sell mobile applications in China and Hong Kong. The companies described WoStore as serving “all open smartphone platforms except for iPhone.”

Unicom is more than a year behind its larger rival in developing a smartphone operating system after China Mobile released its Open Mobile System, or OMS, based on Google Inc.’s Android software last August. That was followed by a line of compatible devices called Ophones.

It remains to be seen how much support from handset vendors Unicom’s new operating system will get, said Wendy Liu, a Hong Kong-based analyst with Royal Bank of Scotland Group Plc.

“We need to see the adoption rates and how much backing Unicom and its vendors put behind this product,” Liu said. “It is Unicom’s effort toward being something more than a mere provider of data capacity, which is the nature of its deal with Apple.”

To contact the reporter on this story: Edmond Lococo in Beijing at elococo@bloomberg.net

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net