China Unicom Initiates 4G Service - Analyst Blog

China Unicom Hong Kong Limited CHU has finally launched 4G service– the third major telecom player to launch the super-fast wireless network. However, skepticism remains about the permanent adaptability of the LTE standard, which would be selected by the carrier for its 4G service.

China Unicom has launched the 4G service in 25 cities including the likes of Beijing, Shanghai and Guangzhou. The company plans to cover 300 cities by the end of this year. The 4G plan is priced at a monthly rate of RMB 76 ($12.36), much reasonable than rival China Mobile Ltd's CHL start-up scheme of RMB 88 ($14.31).

Beijing-based China Unicom also launched 61 terminal devices, which include branded mobile phones, smartphones, tablets and data cards. More than one-third of these terminals are capable of supporting 4G network. China Unicom targets total terminal sales of around 188 million in 2014, of which 100 million will be 4G enabled.

In Dec 2013, China Unicom won LTE-TDD (Time Division Duplex) license along with China Mobile and China Telecom Corporation Ltd CHA. Nevertheless, China Unicom intends to adopt the globally accepted FDD (Frequency Division Duplex) technology when the government issues licenses for the spectrum.

Despite the 4G service launch, China Unicom is not discarding its 3G service. On the contrary, 3G remains its primary focus while 4G forms a supplementary revenue source. The company had 126 million 3G customers at the end of Jan 2014.

At the end of 2013, China Unicom issued a tender for 50,000 LTE base stations in a bid to offer 4G services in China. However, the company lags both China Mobile and China Telecom in base station deployment. Additionally, China Mobile plans to spend approximately RMB 41 billion ($6.9 billion) to deploy 4G services in 2014, which is considerably higher than China Unicom's target investment of RMB 10 billion ($1.65 billion).

Though initially expensive, we believe 4G will provide a significant opportunity for China Unicom as this sector is under-penetrated in the nation. However, with China Mobile's strong presence in the 4G market, China Unicom needs to ramp up its infrastructural investments to gain a meaningful market share, in our view.

China Unicom currently carries a Zacks Rank #4 (Sell). Another stock worth considering within this sector is Shenandoah Telecommunications Co. SHEN, which carries a Zacks Rank #1 (Strong Buy).