China Unicom’s 3G net add falls for the second month in a row

Here’s how competitors may have bested it.

According to Maybank, 3G net add -10% YoY / -4% MoM to 3.1m. It was the second month in a row that China Unicom reported a year-on-year decline in 3G net adds. While China Telecom offered more data usage in its iPhone5 packages, which might have taken some iPhone users away from China Unicom, China Mobile had also become more aggressive in subsidy.

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Since China Mobile’s net profit margin is still relatively higher, we expect China Mobile will continue to be aggressive in the 3G market share gain. 3G penetration reached 32% vs. 31% in Nov. Total 3G net add for 2012 was 36.4m, 9% below our estimate or 40% higher than the 26m 3G net add gained in 2011.

Total 3G subscribers reached 76m, which represented 32% of its total mobile subscribers. Since China Unicom had stopped subsidizing 2G subscribers, and its 2G subscriber started to drop in Dec, we expect the 3G penetration will continue to rise gradually.

Action: Maintain HOLD. Even though China Unicom has been well penetrating its 3G subscribers and gaining the operating leverage, the higher competition may limit the earnings growth. China Mobile and China Telecom will release its 3G subscriber figures today, and we will provide more details.