August 17, 2010 / 8:58 AM / 7 years ago

China's telcos gear up on 3G in growth push

HONG KONG (Reuters) - After dragging their feet for more than a year in promoting 3G, China's three telecoms carriers are likely to showcase plans using smartphones from BlackBerry maker RIM, Apple and others as future growth engines in their upcoming results.

Once seen as dynamic growth companies, China Mobile and its two smaller rivals, China Telecom and China Unicom, have been afflicted with the same problems seen by peers in more mature markets, having to attract new users to their mobile and data services as voice income falls.

Investors will be looking for the latest clues on how the trio plan to rekindle growth using third-generation (3G) mobile services when they report their second-quarter results in the next two weeks, beginning with China Mobile on Thursday.

"They may have to raise handset subsidies or lower prices if they want to attract more users to the 3G service," said Steven Liu, an analyst at DBS Vickers in Hong Kong.

"It also raises the question of how these companies can attract new 3G users at a time when most of the users they're adding are rural users who have no need for a mobile connection."

China is the world's biggest mobile market, with around 700 million subscribers, but operators face stiff competition and have been forced to chase less lucrative subscribers in smaller cities to maintain growth.

The three Chinese wireless carriers spent about $21 billion rolling out their 3G mobile network last year, and are eager to get some of that money back.

To do so, China Unicom has signed to distribute Apple's iconic iPhone, China Mobile is selling Dell's new smartphones and China Telecom is selling BlackBerries in the world's second-largest economy.

Unicom and China Mobile have also said they want to bring in the iPad tablet PC, just as Apple ramps up on its expansion drive in China with a second flagship store in the country's commercial capital Shanghai.

The push has helped China Mobile and Unicom add almost 10 million new 3G users so far this year, who are especially crucial because of their ability to pull up average revenue per user (ARPU), a key performance indicator in the telecoms sector.

Despite the strong 3G subscriber growth, most analysts are not expecting similar growth in revenue and profits this quarter as hefty handset subsidies eat away at earnings.

China Mobile is expected to report flat second-quarter earnings of 30.42 billion yuan ($4.5 billion), according to a consensus forecast of three analysts polled by Thomson Reuters

I/B/E/S.

Unicom is expected to report a net profit of 1.3 billion yuan, down 57 percent, while China Telecom is expected to clock in at 3.45 billion yuan, down 20 percent.

China Mobile stock is up 14 percent so far this year, while China Unicom and China Telecom have risen about 2 percent and 18 percent, respectively. They lead the broader market's 3 percent fall.

Despite some talk of M&A, few expect the carriers -- including cash-rich China Mobile -- to embark on buying sprees anytime soon, as they prefer to focus their efforts at home.

"This talk about acquisitions seems to be plenty of rhetoric," said Bertram Lai, an analyst at CIMB. "China Mobile is sitting on a huge cash pile right now, and what shareholders really want is for the money to be returned to them, not used in acquisitions."

Reporting by Kelvin Soh; editing by Doug Young and Valerie Lee

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