China Unicom – the country’s number two mobile operator – reported a four per cent fall in Q1 net income and a 3 per cent decline in revenue as the country’s new value-added tax (VAT) regime hit home.

Sales fell to CNY74.3 billion ($11.99 billion) from CNY76.5 billion a year earlier. Service revenue from its mobile business fell from CNY40.7 billion at the end of Q1 2014 to CNY36.7 billion this year.

“For the first quarter of 2015, [total] service revenue was CNY60.25 billion, down by 5.6 per cent as compared to the same period of last year,” noted a statement. “The decrease in service revenue was mainly attributed to the impact of output value-added tax which arose from the replacement of business tax with value-added tax (“VAT Reform”) and the transformation of sales and marketing mode etc., but revenue structure continued to optimise.”

Net income fell from CNY3.30 billion in Q1 2014 to CNY3.16 billion ($510 million) at the end of March 2015.

The operator said it had 294.8 million mobile subscribers at the end of the last period. Of concern, this figure dipped by 4.3 million from the previous quarter.

China Unicom did not break out numbers for its new 4G service. GSMA Intelligence gives the operator a 4G connections base of 11.8 million. The operator said that it had a combined total of 151.4 million 3G/4G customers at the end of March 2015.

Mobile ARPU came in at CNY41 ($6.6).