China Unicom Leans On The iPhone 7 To Shore Up Its 4G Business

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China Unicom (NYSE:CHU) is offering aggressive subsidies on Apple’s latest iPhone 7 as it looks to shore up its 4G business, which has been off to a relatively slow start. China’s second largest wireless player is offering an average subsidy of 49% of the total billings for a 24-month iPhone 7 plan, compared to the 40% and 25% discounts being offered by rivals China Telecom (NYSE:CHA) and China Mobile (NYSE:CHL). Unlike the U.S., mobile phone promotions in China are typically structured as reverse subsidies, with carriers requiring customers to pay for devices upfront, while subsidizing their monthly service billings. Below we take a look at some potential implications of these offers on China Unicom. 

We have a $14 price estimate for China Unicom, which is roughly 20% ahead of the current market price.

See our complete analysis for China Mobile | China Unicom | China Telecom

Promos May Help Bolster Subscriber Metrics At The Expense Of Margins

The launch of a new iPhone provides the perfect opportunity for wireless carriers to add valuable high-speed customers, and China Unicom is likely to be counting on these promos to provide a much-needed boost to its wireless net adds and 4G subscriber mix. The carrier added just about 3.7 million new wireless subscribers over the last six months, compared to its smaller rival China Telecom, which added about 9.7 million subscribers. China Unicom’s 4G subscriber mix also stood at just about 30% in July, compared about 46% for China Telecom. 

iPhone users are typically more engaged with their smartphones, and this could help China Unicom further improve its per-subscriber mobile data consumption, which rose by 71% year-over-year during H1, while potentially bolstering ARPUs. Unicom’s ARPU stood at RMB 47 during H1 2016, about 15% below China Telecom. That said, the subsidies could potentially drive-up the carrier’s expenses, and strain its operating profits, which have already declined by about 73% year-over-year during H1. 

Network Expansion, Collaboration Will Also Aid Carrier

China Unicom also has other initiatives underway to improve its 4G uptake. The carrier intends to boost its footprint of 4G base stations to 680k by the end of this year (up 280k y-o-y), while bringing 97% of its mobile data traffic under 4G coverage. While China Mobile, the largest wireless carrier, has the best 4G coverage by far in the mainland, with about 1.32 million base stations, China Unicom is working together with its smaller rival China Telecom to close the gap. The two carriers intend to collaborate to build 60,000 4G base stations and roll out 14,500 km of optical fiber, in a move that could speed up construction while keeping capital expenditures in check.

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