China Unicom: Struggling to maximise its 3G advantage

This is in spite of the firm spending aggressively on marketing and promotions last year, especially on its 3G handset. Its vision to expand wireless broadband for its mobile devices has not truly manifested due to local regulatory hindrance on Wifi support, resulting in lower sales of related products. Depreciation, amortisation and the decrease in fixed-line usage in China have also contributed to China Unicom's woes.

In its first quarter report, the firm stated: "Current liabilities of the group exceeded current assets by Rmb158.8 billion ($22billion)."

Being the nation's second largest telco provider by user base, China Unicom was appointed to the exclusive distribution rights of Apple's iPhone in China. It was also tasked to run the WCDMA 3G network by the Government - the only network that iPhone can run on at present.

Yet although China Unicom had a head start on 3G, subscribers have fallen so far this year. The mobile subscriber base reached 146.39 million in February, up five per cent from the end of 2009. But 3G users totalled just 4.82 million by March.

Meanwhile China Telecom reported 65.45 million 3G subscribers and China Mobile claimed 7.69 million.

In May, China Unicom reduced the cost of the iPhone by as much as 17 per cent and cut on subscription plans for 3G services.

On the bright side, the State Radio Monitoring Center has announced its approval of built-in Wifi capabilities for Apple's mobile products, which will also equip homegrown wireless standard WAPI. Whether this is will apply to the iPhone 3GS or a newer model is still to be revealed.

Looking at the bigger picture, China Unicom is not failing. It is retaining its users and growing rapidly on its 3G offerings, if not its 3G subscribers. But with stiff competition from China Mobile and China Telecom, China Unicom has its work cut out to realise its full potential.

Industry diagnosis

Ross Gearing, managing director at Rapp China:
"China Unicom has been steadily growing in the shadow of China Mobile, which dominates the market. Competing with that colossus would be a hard task for any company. The successful companies in this market are those that address key communications issues, such as clear positioning and vivid engagement with consumers. A purely tactical or technical approach isn't enough - a brand needs to lead the market and be innovative. While the company has focused on interesting initiatives such as the development of a strong 3G network and the launch of its iPhone partnership, the battle with its top competitor is difficult.

There are two challenges that any company faces. Firstly, a brand needs to stand for something and embody key qualities, rather than follow its competitors. What is the essence of the company? What does it believe in? Does the company's image and services stand alone or are they hard to define? Secondly, Chinese consumers have become increasingly sophisticated and make significant demands of their mobile and telecommunication providers. Therefore, service quality is crucial - if a company fails to provide a strong signal and widespread coverage it won't be perceived as a strong brand. A company must deliver on consumer experience."

Johnny Wong, director at Hotmob:
"China Unicom is facing immense economic pressure. Its Q1 result is a bit disappointing compared with its rivals. It has indicated a decline in profitability due to heavy investment in 3G service deployments, network expansion, increased depreciation expenses, big spending in selling and marketing costs.

As the operation of 3G business is at an initial stage, the value-added service for 3G offerings is not seeing growth. Without a unified standardisation in 3G services in China, these factors will continue to affect the company's profitability this year.
China Mobile is the world's largest mobile operator by subscribers, while China Telecom is the largest fixed line service provider and ISP in China. Both of them have built up strong subscriber bases.

The issue of how quickly China Unicom adds 3G wireless subscribers will be a key factor in determining its competitiveness in the market.

As China Unicom is the exclusive China distributor of Apple's iPhone, it should look into competitive price strategy and good quality value added services to add more subscribers, so that it can expand its 3G business at a faster pace. Opportunities are still there."

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This article was originally published in the 20 May 2010 issue of Media.