Accounting at China Unicom triggers concern
( 2003-09-01 16:05) (Financial Times)
China Unicom, the mainland's number two mobile telephone operator, said yesterday its CDMA wireless network operations could turn profitable by the year-end, but analysts pointed out that the company was using aggressive accounting techniques to achieve its target.
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China Unicom Ltd chairman and president Wang Jianzhou answers a question during a news conference in Shanghai September 1,2003. China Unicom Ltd, China's number two mobile carrier, would like to take a minority stake in a CDMA venture outside China in the next one to two years, Wang said. Unicom, whose CDMA mobile phone system uses Qualcomm technology, is considering strategic investments with US-based Qualcomm Corp in developing markets near China, he added. [Reuters] |
The fact that China Unicom had continued to capitalise and amortise the costs of handset subsidies, rather than charging them against profits, caused particular concern.
In the first six months, China Unicom expensed Rmb3.1bn ($374m) from the Rmb6bn reserve left on its books at the end of 2002.
However, the company capitalised a fresh Rmb2.9bn during the period, bringing the total amount for handset amortisation back to Rmb5.7bn. The company said it would amortise about Rmb3bn in the second half.
Francis Cheung, an analyst at CLSA, said the move was disappointing after the company promised a few months ago not to capitalise any more subsidy costs.
"If they expensed [the handset subsidies], it would have been very negative for them. They were forced to capitalise it," said Mr Cheung.
"But obviously it will be easier for China Unicom to break even by capitalising its expenses."
Wang Jianzhou, the new chairman and president of China Unicom, said on Friday that he hoped the company's CDMA division, which reported a pre-tax loss of Rmb587m in the first half, would break even by December.
Despite being slightly lower than the year-ago figure of Rmb600m, the division's losses actually increased from Rmb210m in the first quarter to Rmb380m in the second quarter.
Mr Wang also remained confident that China Unicom could meet its 11.4m subscriber target this year, as subscriber numbers advanced by 3.7m to 9.98m in the first half despite Sars and competition.
He said the newly launched pre-paid service was also aimed at low-end users, even though it might further weigh on average revenue per user, or Arpu.
Despite falling from Rmb94.6 at the end of last year to Rmb84 in June, Mr Wang said net Arpu from CDMA operations would remain above Rmb80 at the year-end.
Shares of China Unicom fell 0.89 per cent to HK5.5 on Friday after the group reported a worse than expected first-half profit a day earlier, due to a Rmb560m write-off for its loss-making paging business.
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