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Profitable CDMA Business May Save Unicom from Splitting(SinoCast China IT Week Via Thomson Dialog NewsEdge) BEIJING, January 19, SinoCast -- China Unicom will for sure achieve profit from its CDMA operation for all of 2006, according to informed insiders close to the Beijing-based mobile carrier. In that case, the earlier talks about Unicom's spin off of CDMA business might come to nothing, analysis says. As planned, Unicom will announce its financial results for both the fourth quarter and the full year of 2006, of its two listed arm respectively traded in Hong Kong and the mainland stock exchanges, at the end of March. And the full-year profit of CDMA operation is expected to highlight the carrier's reports then. Since the commencement of its CDMA business in 2002, Unicom has not met a year with four-quarter profit until 2006. Its third-quarter results told a CDMA profit of CNY 800 million. Chairman and the president of the company have also expressed on many public occasions that Unicom would realize full-year profit from CDMA for sure. In its first four years of operation of CDMA network, the high investments in and losses from the business have always been considered the major factor eclipsed Unicom's entire performance, and investment banks have been looking pessimistically on the prospect of the CDMA operation. Just one month ago, overestimation was still the common judgment of Chinese telecom stocks by foreign investment banks, and it was seen to be of big likelihood that Unicom would be split apart led by the nation's telecom reform. In early January, JP Morgan has said in a report that China may implement telecom reform in the first quarter of this year, and Unicom's CDMA assets may be sold to its fixed-line counterpart China Telecom for possibly CNY 25 billion in cash. However, in light of Unicom CDMA's present profit tendency, foreign investment banks began to take a turn. UBS recently lifted Unicom's target price from HKD 10.2 to HKD12.8, and included it into the "buy" rank. After Unicom achieved profit from CDMA, JP Morgan's prediction was obviously less likely to come true, said Mr. Zhang Ying, vice president of Analysys International, a leading telecom consultancy firm in China. Unicom has invested over CNY 50 billion in the CDMA network, so it is impossible for it to undersell the assets for just CNY 25 billion while the business turned to be profitable, according to Zhang. From current situation, Unicom's CDMA operations will definitely keep generating profits, so the cost of a restructuring in this condition would be overhigh, and the restructuring effect is also not that optimistic, a telecom expert expressed. Mr. Zhang also believes this is not the best time to go for a restructuring now. Not alone Unicom's CDMA assets will further rise in value thanks to the expansion of the network and the cost reduction after years of operation, the country's new accounting rules are expected to help strengthen the carrier's profit ability, he said. China's new rules on corporate income tax uniform the tax rate for domestic and foreign companies at 25%, which is widely seen to be most beneficial for large-sized state-owned enterprises from sectors like financial and telecom, and their profits will hence increase 8% to 9% in the next three to five years. The way of network lease by mobile carrier to fixed-line carrier, or network cooperation, after the government issued the 3G license will be less costly than splitting one for restructuring, Zhang suggested. As of the end of last December, the CDMA subscribers of China Unicom, the nation's second-largest mobile carrier, have exceeded 36 million households, making the company world's second-largest CDMA operator, statistics show. Copyright 2007 Sinocast |