What to Expect As China Unicom Publishes Q4 Earnings

China Unicom ( CHU ), the second-largest Chinese wireless carrier, is expected to publish its Q4 and full year 2016 results on March 15. Below we provide a brief overview of the key trends to watch as the carrier publishes results.

Wireless Business Could Expand On Customer & ARPU Growth

China Unicom's service revenues could rise slightly on a year-over-year basis, driven by its expanding wireless subscriber base and higher ARPU. However, this could be partially offset by declines in the carrier's wireline business. The company added a net of 1.75 million wireless subscribers over Q4, with roughly 15.5 million 4G subscriber additions/migrations. Wireless ARPU could see a slight improvement, driven by a higher mix of 4G subscribers (39.5% of subscriber base using 4G as of December, compared to about 19% in January 2016), although 4G ARPU could be impacted by lower data rates and the government's unused data carry-forward policy.

China Unicom's network expenses have seen an increase in recent quarters (up 32% year-over-year for the first 9 months of 2016) driven by higher tower usage fees, following the transfer of the carrier's tower assets to the China Tower JV, formed along with peers China Telecom and China Mobile. This has impacted the carrier's operating margins.  However, there is scope for cost reduction going forward as the sharing ratio improves, with more base stations from the three participating carriers being housed on each tower.

Wireline Challenges Could Continue

The carrier's wireline business, which primarily operates in Northern China, could see revenues trend lower, amid the attrition of landline customers (about 7.2 million phone losses through 2016). While its fixed line broadband segment has been growing, it has been ceding market share to rivals. China Unicom's broadband subscriber base grew by just about 2.9 million over the year, while China Mobile, which began offering broadband services just about 2 years ago, added close to 22.5 million subscribers, driven by aggressive pricing and promotions.