China Unicom to invest $14.6 billion in 3G network expansion

China Unicom Ltd., the second-biggest mobile-phone carrierafter China Mobile, today said it plans to spend about 100 billion yuan ($14.58 billion) in building its third-generation wireless network across China in the two years to 2010, a figure which surprised the market, sending its Hong Kong-listed shares down sharply.

The disclosure was made on page 38 of a lengthy corporate statement covering a range of issues that was submitted to Hong Kong securities regulators Wednesday. Analysts said the large capital expenditure figure raised concerns the firm could face large depreciation charges in coming years, which would impair the firm's profitability.

Shares in the telecom giant fell 4.3 per cent to close at HK$14.80 ($1.90) Wednesday, taking its three-month decline to 11.6 per cent. Shares in the telecom's parent, China United Telecommunications Co., closed 2.5 per cent lower at 5.85 yuan in Shanghai trading Wednesday.

The proposed investment covers spending in 2009 and 2010, according to a Unicom statement to the Hong Kong stock exchange today. The Beijing-based company said previously 2008 capital expenditure on its wireless network would be 18.7 billion yuan.

China Unicom said it expects to receive a 3G license following its merger with China Netcom Group Corp. (See: China Unicom to buy fixed line operator Netcom for $23.9 billion in stock)

Government regulators directed the merger between the two firms as part of an industry restructuring announced in May. Under the government reorganization, the company will sell the smaller of its two mobile-phone businesses, based on code- division multiple access technology, to China Telecom.

Unicom's bigger network, based on the global system for mobile communications, or GSM, standard, had 127.6 million customers at the end of June, compared with 43.2 million CDMA users. However, China Mobile is far ahead with 414.6 million customers at the end of June, more than twice the combined total of Unicom's GSM and CDMA businesses. (See: China restructures its telecommunications infrastructure into three giant companies)

China's telecom regulator has said it will issue three nationwide 3G licenses as part of the industry restructuring. Additional recipients for the next-generation cellular services are believed to include China Mobile.

Three nationwide carriers will offer both fixed-line and wireless services once the restructuring is completed, consolidating the services of six state-owned cellular and fixed-line operators currently in operation.