China Unicom Faces Intensifying Competition for High-End Smartphone Users

   Date:2012-03-15

We think China Unicom's CHU advantage in the high-end smartphone market has narrowed further with China Telecom's CHA sales launch of Apple's AAPL  iPhone last Friday. Given the limited scope of number portability and fairly comparable prices for voice and data plans at both iPhone carriers, we don't expect many current China Unicom customers to switch networks. But we do think the window of opportunity to convert aspiring iPhone owners among China Telecom's 2G users to the China Unicom network probably has closed. We have no plans to change our fair value estimate of $18 per share after it has converged with China Unicom's stock price, due to a 16% decline since the beginning of the year.

At the end of January 2012, China Unicom controlled 31.7% of the 3G market, behind China Mobile CHL  (39.8%) and slightly ahead of much smaller rival China Telecom (28.5%), based on subscriber data releases from the carriers. We long have argued that despite China Unicom's 3G market lead in technology and vendor support, execution is lacking in areas including branding, distribution, and customer services that are particularly important to high-end users. A case in point is the 15 million users of unlocked iPhones that China Mobile reportedly has on its network, although none of the iPhone models supports the carrier's TD 3G standard. In spite of the technology handicap, China Mobile has done an impressive job to keep users on its network by offering to cut regular SIM cards into sizes that fit an iPhone as well as timely services to guide users through adjustments so the iPhones can deliver voice and data services properly on its 2.5G network. Moreover, China Mobile also has been adding a large number of Wi-Fi hotspots in major urban markets during the last several quarters to provide better connections and higher network speeds to users of 3G handsets, including the iPhones.

As we have pointed out in previous notes, China Unicom should spread its marketing spend and handset subsidies to a wider range of smartphones beyond the iPhone, improve its voice coverage, and be more responsive to customer demands. The carrier also needs to diversify the handset offering to include more midrange and entry level 3G handsets that generate decent data revenues with limited incremental cost, in our view.

 

2005-2011 www.researchinchina.com All Rights Reserved 京ICP备05069564号-1