China Unicom Finally Gets License To Start Its Hybrid 4G Network Trial

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China Unicom (NYSE:CHU) has been granted a license by China’s Ministry of Industry and Information Technology (MIIT) to conduct a hybrid 4G network trial in 16 cities in the country. [1] This will allow the second largest carrier in China to start providing 4G services based on a unique 4G network, integrating both the TD-LTE and FDD-LTE technology standards. Currently, the carrier offers 4G services on the TD-LTE standard, licenses for which were granted by the government in December 2013.

When the government awarded TD-LTE licenses last year, China Unicom was unsure on whether to use the home-grown TD-LTE standard or wait for the FDD-LTE license to launch 4G services. Eventually, the carrier chose to selectively launch 4G services on the TD-LTE standard by building the required network itself and wait for FDD-LTE licenses to expand further. The company could not choose to extensively expand its 4G offerings only on the TD-LTE standard because its existing 3G network (WCDMA) was compatible only with the FDD-LTE 4G standard (rather than TD-LTE), which would not have allowed a seamless transition of its existing 3G user base to TD-LTE 4G. In contrast, market leader China Mobile‘s (NYSE:CHL) 3G network (TD-SCDMA) was fully compatible with the TD-LTE standard, which is the reason for its rapid 4G expansion and subscriber gains in the last six months.

We expect the hybrid license to help China Unicom improve its monthly subscriber adds and pose a bigger challenge to China Mobile’s dominance in 4G. However, it remains to be seen how the carrier intends to increase the supply of handsets compatible with its hybrid 4G network.

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Our current price estimate for China Unicom is $17, implying a premium of less than 10% to the market price.

See Full Analysis for China Unicom Here

Integration Of 3G With Hybrid 4G

China Unicom earlier announced that, as part of its 4G strategy, it would unify its 3G and 4G operations in network construction and user tariffs. This reflected in its 4G plan offerings which were priced similar to its 3G plans. For instance, a China Unicom prepaid plan providing 400 MB of 4G data and 200 voice calls for a month costs about RMB 76 ($12.25), which is similar to its 3G plan rates. Additionally, the carrier offers about 24 handset options to potential subscribers, which are compatible with both its 3G WCDMA as well as 4G TD-LTE networks. These handsets include popular smartphones such as the Samsung S4, Samsung Note 3, Sony Z1 and HTC One Max. [2] [3]

However, there is still a lack of clarity regarding some aspects of the carrier’s strategy, for instance how subscribers will use these new handsets (3G & TD-LTE compatible) with the carrier’s FDD-LTE 4G network in the future. Also, whether China Unicom will be keeping its TD-LTE network independent of its FDD-LTE network is unclear. The best possible plan for the carrier to provide seamless 4G connectivity in the long run could be to introduce handsets which are compatible with all three technology standards- WCDMA 3G, TD-LTE 4G and FDD-LTE 4G. However, since such handsets are not in use anywhere else in the world, this could prove difficult in the near term.

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Notes:
  1. Press Release, China Unicom, June 27 2014 []
  2. China Unicom finally rolls out 4G, but confusion reigns over dual LTE strategy, Tech In Asia, March 18 2014 []
  3. 4G/3G Mobile Offers, China Unicom, 2014 []