China Unicom to launch CDMA network soon


The availability of handsets will be an important issue for China Unicom's new CDMA network

HONG KONG, China -- China's No.2 mobile carrier China Unicom said Friday it will launch a new $2.9 billion network in early January using the CDMA (code division multiple access) standard.

The new network will operate alongside the carrier's existing GSM system, which is the dominant standard in China, most of Asia and Europe.

"We believe that the CDMA service enjoys substantial economic and technological advantages, including better spectrum allocation necessitating fewer base stations," executive director Li Zhengmao told analysts in a conference call Friday.

U.S. company Qualcomm owns patents for the CDMA standard but has licensed foreign and Chinese vendors to produce it.

Will market network as a premium service

China Unicom has signed a deal to lease capacity from its parent for 299 yuan (US$36.11) per subscriber in the first year.

It will market the network as a premium service targeted at mid-to high-end users.

The 299 yuan per subscriber lease figure is based on expected capacity in the network's first year of 9.18 million users in the listed company's provinces.

Capital spending on the 15.15 million-user capacity network will be about 24 billion yuan (US$2.9 billion), or 1,600 yuan per subscriber, China Unicom said

Ultimately, the nationwide network is expected to have capacity for 50 million users.

World's biggest mobile phone market

China is the world's biggest mobile phone market, and China Unicom said on Friday it expects the overall group, including provincial networks, to win a 35 percent share of the market, or 100 million subscribers by 2005, from 27 percent in 2001.

China Unicom has been allowed by Beijing to discount its existing GSM service by 10 percent to build market share against its bigger rival China Mobile (Hong Kong) and its parent.

During the first year of the agreement that begins January 1, China Unicom will lease CDMA capacity on a quarterly basis, committing to two million subscribers for the first quarter and four million for the second quarter, it said.

Unicom New Horizon, a wholly owned unit of China Unicom's parent, will build the CDMA network.

Unicom able to buy the network

The lease deal is structured to enable Unicom New Horizon to recover its investment in constructing the CDMA network within seven years, with an eight percent return, China Unicom said.

Under terms of the deal, China Unicom may purchase the CDMA network during the term of the lease and within one year following the expiry of the lease.

"It's broadly as we were expecting," said Merrill Lynch telecoms analyst Alistair Scott, of the lease terms.

Nomura International analyst Kelvin Ho said the most important issues were tariff structure, handset pricing, handset availability and marketing.

Shares in China Unicom rose 1.68 percent to HK$9.10 Friday, but the stock has still lost about 24 percent so far this year as investors turn away from telco stocks.

Reuters contributed to this report.