China Unicom (Hong Kong) Ltd (CHU)

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China Unicom Limited (CHU)

Q2 2009 Earnings Call

August 28, 2007, 9:00 am ET

Executives

Chang Xiaobing - Chairman and CEO

Lu Yimin - Executive Director and President

Zuo Xunsheng - Executive Director and Senior VP

Tong Jilu - Executive Director and CFO.

Analysts

Presentation

Chang Xiaobing

Good afternoon, ladies and gentlemen. I am Chang Xiaobing, Chairman and CEO of China Unicom Hong Kong Limited. Welcome to our 2009 interim results announcement. Let me introduce other members of our management team, Mr. Lu Yimin, Executive Director and President, Mr. Zuo Xunsheng, Executive Director and Senior Vice President and Mr. Tong Jilu, Executive Director and CFO.

Today's presentation includes three parts. First, I will share with you our overall performance for first half 2009, then Mr. Lu will report the operating performance and Mr. Tong will present the financial result. Finally, we'll open for Q&A.

Since 2009, the Chinese macro economy continued to face various challenges brought by the global financial crisis. After the restructuring of the Telecom industry and the insurance of the 3G license, the operators in China started full service operations, while industry competition intensified.

In first half 2009, although facing with complex market environment, the company actively pushed forward it's internal integration, leveraged on the advantage of full service resources, overall our mobile and fixed-line broadband business had achieve stable growth, while traditional fixed line business continue to decline.

In first half 2009, operating revenue was RMB76.319 billion, adjusted service revenue was RMB74.23 billion, down 3.3% year-over-year and basically flat compared to end of 2008. Mobile revenue reached RMB34.194 billion, up 5.7% year-over-year. Fixed-line revenue was RMB39.908 billion, down 9.7% year-over-year. In first half 2009, the company integrated the resources of mobile and fixed-line businesses. Improved its GSM network coverage aggressively, pushed for broadband access speed upgrade.

As a result our full service operations had achieved initial success. Percentage of value added services revenue to total revenue increased further and business structure was improved as well. Mobile revenue accounted for 46.1% of total revenue, up 3.9 percentage points year-over-year. Non-voice mobile service revenue accounted for 27.2% of mobile service revenue, up 1.9 percentage points year-over-year. Non-voice fixed line service revenue accounted from 47.2% of total fixed-line service revenue, up 5.7 percentage points year-over-year.

Since obtaining WCDMA license on January 7, the company focused its resources to deploy 3G network and 3G service commercial trial. At present, our 3G network coverage reached 285 cities or base stations over HSDPA with downlink speed of above 7.2 megabits per second, base stations at hotspot areas over HSUPA. Due to centralized procurements and synergy, the 3G investment units cost has declined significantly, which allows us to expand the 3G coverage from the original planned 284 cities to 335 cities.

On May 17, the company launched a 3G commercial trial in 56 cities. At present, the number of trial cities is expanded 268 and currently we have 315,000 friendly users using our 3G services and management. We have improved the network utilization efficiency, established centralized capital management centered on organization structure and team adjustments. Major management policies and business processes has been implemented step-by-step,

Due to the complexity of the internal integration the apparent synergy effects have yet to be seen. At the same time, we have noticed some positive changes brought by the integration.

In the first half of this year [net ads] of household and customers with bundles accounted for 34% of total mobile net ads. The rate of mobile subscribers with bundle services was much lower than the subscribers with standalone service.

In the second half of this year the company will launch tight-bundled services, featuring shared minutes, unified accounts and et cetera. At the same time, we will explore shared service platforms to improve subscribers' values and loyalty.

Next, I would talk about our overall thinking for the second half from the following three areas. First, integration and convergence will help create new opportunities. In the second half, the company will actively grasp opportunities arising from the industry restructuring, seize the markets demands from broadband Internet and mobile informatization, further integrate the network resources, promote innovations in technology, services, applications and customer cares and strengthen organization and processes to improve execution capacity in order to enhance shareholders' value.

Second, we'll adjust business structure to promote growth. New changes are emerging in the telecom sectors and is related consumer demands in China. Demand for voice services in some areas is approaching saturation, while there's huge potential for the demand of non-voice services.

To accommodate the investor and regulatory changes, China Unicom will continue implementing structural changes of its very businesses, boost the revenue contribution from non-voice business, as well as from other new business deployments.

Going forward, we will commercially launch 3G services to promote non-voice usage and to establish competitive advantage. For 2G business, we will continue to leverage on our full service advantages, to improve quality of subscriber growth and to promote healthy business development.

For fixed fixed-line broadband business, we will continue the network access speed upgrade to expedite business development and to increase its revenue contribution. For fixed-line voice business we'll focus on retention and voice value-added services to mitigate the rates of decline. Third, 3G commercial launch to establish competitive advantage.

In second half 2009, the company will expedite the 3G network deployment and commercial trial process. The target is to have 3G commercial launch in 285 cities on September 28, 2009. Upon commercial launch, our strategy is to develop leading position in three areas and adopt unified message in six aspects. Based on the commercial trial feedback, we will further refine the target subscribers. Optimize the pricing framework, speed up the channel development, conduct handset centralized procurement as well as encourage open marketing model in order to expand the subscriber sale.

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