China Unicom reported a fall in first-half results, as the operator struggles to keep up in the emerging 4G mobile market in China. The company's operating revenues fell 3.1 percent to CNY 140.26 billion, and EBITDA was down 18.2 percent year-on-year to CNY 41.28 billion. The EBITDA margin dropped by 8.1 percent points to 33.9 percent. In line with Unicom's earlier profit warning, net profit for the six months declined 79.6 percent to CNY 1.43 billion.
Unicom said it tried to overcome a number of underlying shortcomings in H1 and work on long-term development. Profits suffered from an increase in sales and marketing costs and the new tower fees following the formation of its infrastructure joint venture with the other two operators. Energy and property rental fees also increased.
The company said mobile service revenues appear to have bottomed out, with annual growth of 1.4 percent and a 6.0 percent increase compared to H2 2015 to CNY 121.91 billion. The recovery in service revenue and a 39 percent cut in capital expenditure led to a near tripling in free cash flow year-on-year to CNY 23.83 billion. Nevertheless, Unicom will not pay an interim dividend.
Mobile service revenue was still down 0.6 percent to CNY 73.04 billion, but the drop was smaller than the 8.0 percent last year. Data traffic revenues rose by 18.5 percent to CNY 35.93 billion, while voice revenues were down 14.7 percent to CNY 26.0 billion.
Fixed-line revenues rose 4.4 percent year-on-year to CNY 48.23 billion, driven by expansion of ICT services and promotion of high-end broadband and video services. The number of FTTH subscribers was up over 62 percent year-on-year to 46.04 million, accounting for over half of the total 73.94 million broadband customers.
The operator returned to mobile customer growth, adding a net 8.39 million new subscribers in the six months for a total 260.70 million at the end of June. 4G subscribers increased by 28.26 million in the first half to a total of 72.42 million. Unicom said it expects a continued improvement in H2, with 4G net additions already accelerating and mobile service revenue growth of 2.6 percent in July.
The company's capex budget is still expected to halve this year, to around CNY 75 billion after spending CNY 18.1 billion in H1. Unicom will focus on top-quality 4G coverage in key cities and plans to add around 280,000 4G base stations this year, for a total of over 680,000. It had 588,000 4G BTS at the end of June, after adding around 189,000 in H1.
Unicom said it has projects in place to share around 60,000 base stations with China Telecom and some 14,500km of transmission fibre lines around the country. They two operators are also jointly promoting six-mode handsets to encourage customers to upgrade to 4G. However, the usage fees for the tower JV, which reached CNY 7.7 billion in H1, are expected to continue to put pressure on profits in the near term.
