China Unicom to Test Hybrid 4G Network - Analyst Blog


The second largest telecom operator in China - China Unicom Ltd. ( CHU ) - has received the green signal from the Ministry of Industry and Information Technology (MIIT) to conduct a pilot test on two of the most recognised 4G LTE (Long Term Evolution) standards. This is deemed as an effort by the carrier to curb the current market leader China Mobile Ltd.' s ( CHL ) dominant foothold in the market.

China Unicom will initially start the network trial by integrating both the TDD-LTE (Time Division Duplex) and FDD-LTE (Frequency Division Duplex) Standards in 16 different cities in the mainland, including popular cities like Shanghai, Shenzhen, Guangzhou and Xian, among others.

In Dec 2013, China Unicom won the LTE-TDD license. Soon after, in Mar 2014, the company launched its 4G service in 25 cities based on TD-LTE standards. However, skepticism lingered with regard to the permanent adaptability of the LTE standard, as the carrier's 3G standard (Wide Band Code Division Multiple Access or WCDMA) is compatible with FDD-LTE.

Thus, rival China Mobile secured a competitive edge in 4G owing to the compatibility of its 3G standard (Time Division Synchronous Code Division Multiple Access or TDSCDMA) with TD-LTE. At the end of May 2014, China Mobile had 8.11 million customers.

Beijing-based China Unicom has also launched 61 terminal devices, which include branded mobile phones, smartphones, tablets and data cards. More than one-third of these devices are capable of supporting 4G network.

According to China Unicom, these hybrid options will allow it to provide better connectivity through faster Internet download speed. However, the carrier will have rival China Telecom Corporation Ltd. ( CHA ) for company, which recently won the approval to proceed with its hybrid network trial test.  

A 4G network based on the globally acceptable FDD-LTE standard will allow China Unicom to improve its subscriber additions and pose a bigger threat to China Mobile. Although still on a nascent stage, the successful implementation of this hybrid network should boost China's wireless market.

However, going forward, China Unicom needs to enhance its handset portfolio, which will support its hybrid 4G network. The carrier must also focus on aggressive promotion and competitive tariff plans to earn a larger share of the pie. Further, we remain concerned about the seamless transition of China Unicom's 3G customers into its dual 4G network.

China Unicom currently carries a Zacks Rank #5 (Strong Sell). A stock worth considering within the sector is KT Corp. ( KT ) with a Zacks Rank #1 (Strong Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Stocks

Referenced Stocks: CHU , KT , CHL , CHA

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