China Unicom takes profit hit for second year in a row

China Unicom’s heavy spending on handset subsidies has taken its toll on profits.  Announcing its 2010 annual results yesterday, China’s second-largest operator reported an 11.3 per cent growth in revenue that was tempered by a net profit drop of almost 60 per cent to $586.5m. China Unicom reported losses of RMB 3.4bn on “handset subsidy costs.”

It is the second year in a row that the company has posted a profit decrease in excess of 50 per cent. In both instances, the company cited its heavy investment in 3G as the main cause; in the past year, China Unicom has spent heavily on handset subsidies in a pitched battle with rivals China Mobile and China Telecom for a share of the 3G market, which offers higher ARPU.

In January this year, the company gave advance warning of its expected profit drop, stating that “although the revenue of the company has grown rapidly in 2010, there is high pressure on the company’s earnings in 2010 due to the fast increase of depreciation and amortisation, networks, operations and support expenses, as well as selling expenses, particularly the 3G handset subsidy, in relation to the initial operation stage of the company’s 3G business.”

China Unicom is the second-placed operator in the world’s largest market. Figures from Informa’s WCIS show that it ended 2010 with a subscriber base just short of 168 million. China Mobile leads the market, with 587.3 million, with China Telecom a distant third with 91 million subscribers.