China’s second largest operator China Unicom issued a profit warning for Q1, stating it expects net profit to drop 85 per cent from a year ago due to a sharp increase in network, operating and support expenses.
In a statement on its website, the operator said it forecasts its Q1 net profit falling to CNY480 million ($74 million). The statement said a 16 per cent increase in selling and marketing expenses, coupled with rising tower usage fees and higher energy charges and property rentals, are expected to lead to a 37 per cent year-on-year jump in network, operating and support expenses.
China Unicom said that its operations were on track in Q1, with a net gain of 6.6 million mobile subscribers, turning around the downward trend over most of 2015 when it lost 14 million customers.
On the positive said, it said mobile service revenue is expected to grow 9 per cent quarter-on-quarter to CNY36.2 billion in Q1, but will decline by 1 per cent year-on-year. Overall service revenue in Q1 is forecast at CNY60.8 billion, showing growth compared with both Q4 and the same period last year.
Last year the operator suffered a series of setbacks, with its mobile user base dropping 5.4 per cent, net profit down 12.4 per cent and mobile service revenue falling 8 per cent.
The operator said in a statement last month it was “facing the complex changes in the business environment and stiff challenges, including speed upgrades and tariff reductions, one-month data carry-over, the replacement of business tax with VAT, and intensifying competition”.
The company’s 2015 net profit, which included a CNY9.25 billion gain on the transfer of telecoms towers and related assets to China Tower, slid to CNY10.6 billion ($1.63 billion). Its EBITDA declined 5.7 per cent year-on-year to CNY87.5 billion. Overall revenue fell 2.7 per cent to CNY277 billion, while service revenue dropped 3.9 per cent to CNY235 billion.
The number two player also has struggled in the battle to win 4G users. Market leader China Mobile continues to expand its lead after adding 38 million 4G users in the first two months of the year. It now has 360 million 4G connections or 75 per cent of the country’s total.
China Telecom, the number three player, added 10.6 million 4G users during that period, taking its 4G total to 69 million, while China Unicom signed up 11 million 4G subscribers, giving it 55 million 4G connections.
4G users represent just 21 per cent of China Unicom’s 258 million total connections, compared with 43 per cent for China Mobile and 34 per cent for China Telecom.