Unicom Trials 4G, ZTE Dusts Off Old Numbers 中国联通试验4G技术中兴通讯旧账重提

By newsdoug on February 27, 2012

Unicom discusses 4G plans A couple of items from the telecoms space have caught my attention this overcast Monday in Shanghai, one containing the first news I’ve seen on 4G plans of China Unicom (HKEx: 762; NYSE: CHU), China’s second biggest telco, and the other a silly announcement from telecoms equipment giant ZTE (HKEx: 763; Shenzhen: 000063) that seems designed to divert attention from its rapidly shrinking profits. Let’s look first at Unicom, which finally appears to be thinking about the future as it puts a year of management turmoil behind. A report in the English-language Shanghai Daily cites a Unicom official at a press conference with Shanghai’s mayor saying the company will spend $1.3 billion to upgrade its systems in the city over the next few years. (English article) The list of projects contains many familiar items, such as improving broadband speeds and adding wi-fi hotspots. But the one that caught my attention was that some of the money will go to trialing 4G technology, and that Shanghai has been chosen as one of the first batch of cities where trials will take place. In my view this announcement looks quite significant, because up until now only China Mobile (HKEx: 941; NYSE: CHL), the nation’s largest telco, has moved aggressively to develop 4G, with advanced large-scale trials already taking place in a half dozen major cities. For technological reasons, Unicom and smaller rival China Telecom (HKEx: 728; NYSE: CHA) should require far less time to develop their 4G networks, meaning that if Unicom really starts trialing technology this year it could easily commercialize its 4G network around the same time as China Mobile, perhaps as early as late 2013. If the company can get organized and focus on building its business, which it may finally be doing, it could easily find itself in a strong position when the regulator awards 4G licenses. Moving on quickly to ZTE, the company issued a press release that I can only call silly late last week boasting that it achieved the world’s fastest revenue growth of 33 percent in the first three quarters of last year, according to a new report by market research firm Frost and Sullivan. (company announcement) While obviously it’s nice to be cited as a leader in such a report, the truth is that the first 3 quarters of last year are now nearly half a year in the past, meaning that much may have changed since then. But more importantly, it says nothing about ZTE’s profit, which is shrinking as quickly as revenue is growing as the company pursues a risky strategy of rapidly building up its cellphone manufacturing business by selling low-cost models for little or no profit to quickly build market share. (previous post). I’m not saying that ZTE shouldn’t be proud of its rapid revenue growth, which is coming mostly from its cellphone expansion. But if it’s smart, it will keep a careful eye on its bottom line or risk watching its profit continue to erode and possibly even disappear, wiping out any positive effects of fast-growing revenue.

Bottom line: Unicom’s launch of 4G trials means it could quickly catch up to China Mobile, while ZTE needs to pay equal focus to both its top and bottom lines as it builds up its cellphone business.

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