The Company continued to report remarkable growth in operating results for 2018. Service revenue for the full year amounted to RMB263.7 billion, representing a 5.9% year-on-year growth which outperformed the industry average growth rate of 3.0%. EBITDA amounted to RMB84.9 billion, up by 4.3%, year-on-year. Profit attributable to equity shareholders of the Company increased by 458%, year-on-year, to RMB10.2 billion, extending the "V-shaped" rebound in profit. Thanks to the sustainable growth in revenue and sound control in expenditure, the Company registered the record high again in free cash flow in the amount of RMB47.5 billion.
In 2018, the Company pressed forward the innovative operation of its mobile service in response to the pressure from market competition and "Speed Upgrade and Tariff Reduction" policy, achieving the effective growth for the mobile service with reduced channel commission and handset subsidy. Mobile service revenue for the full year reached RMB165.1 billion, representing a year-on-year growth of 5.5% that exceeded the industry average of 0.6%. Mobile billing subscribers saw a net addition of 30.87 million, representing a year-on-year growth of 51.8% and taking the total number of mobile billing subscribers to 320 million.

During the year, the Company chose not to simply match the competition of low-price "unlimited data" products introduced by peers, nevertheless persistently promoted Internet-oriented operational transformation and deepened 2I2C business collaboration with Internet companies. Leveraging market segmentation, differentiated products were launched to address the unanswered demand of heavy data users. The Company deepened the unified online and offline ("O2O") total touchpoint operation and turned outlet sales to on-street sales, enhancing customer flow between online and offline operations. A strong emphasis was placed on light touchpoints such as online channels and cross-industry alliances to enhance the efficiency of development. Target marketing and customer retention were enhanced with the use of Big Data, resulting in better customer acquisition and retention as well as value enhancement. For 2018, the Company's 4G subscriber base saw a net addition of 45.05 million to a total of 220 million. Its 4G subscriber market share was up by 1.3 percentage points, year-on-year. The proportion of 4G subscriber as a percentage of total mobile billing subscriber increased by 8 percentage points, year-on-year, to 70%.
In 2018, the Company actively responded to the challenge of market competition in broadband service by resorting to "Big Video, Big Integration and Big Bandwidth". Leveraging rich resources afforded by its strategic investors, the Company strengthened its content portfolio with quality video and stepped up with the deployment of smart home services to boost subscriber stickiness and product competitiveness. The promotion of bundled products through all channels was also strengthened, with a special emphasis on increasing penetration and driving mutual development across products. It also promoted high-bandwidth products and increased private capital cooperation to further enhance network coverage and quality. The implementation of comprehensive grid-based contract-out reform was accelerated to enhance the vibrancy of frontline staff and strengthen the Company's sales and servicing ability. The Company's fixed-line broadband subscriber saw a net addition of 4.34 million, representing a 234% year-on-year growth, to over 80 million in total. Video service subscribers accounted for 44% of fixed-line broadband subscribers, up by approximately 9 percentage points, year-on-year. Fixed-line broadband access revenue amounted to RMB42.3 billion, indicating a considerable reduction of the rate of decline year-on-year and basically achieving a steady development.
In 2018, led by the model of "Cloud + Smart Networks + Smart Applications", the Company stepped up market expansion and drove scale development in key innovative businesses, such as Cloud Computing, Big Data and the Internet of Things ("IoT"), accruing energy for highly efficient and sustainable development in the future. Focusing on key sectors such as government affairs, education, medical and healthcare, finance, transportation and tourism, and actively bringing into play the complementary resources and business synergies afforded by strategic investors with in-depth business and capital cooperation, the Company fostered differentiated advantages. In 2018, the Company's innovative business was gradually becoming the key driver of revenue growth. For the full year, the industry Internet business reported revenue of RMB23.0 billion, representing a 45% growth, year-on-year, and increasing to 8.7% as a percentage of service revenue.
In December 2018, the Ministry of Industry and Information Technology consented to China Unicom to use the frequency band of 3500 - 3600MHz nationwide for launching the trial of 5G mobile communications system.

The Company is actively promoting 5G network and industry applications trial in key cities and plans to expand the scale of trial as appropriate based on the testing results and maturity of equipment. It will track closely the progress of the industry and strengthen the synergetic development of terminal, network and business, riding on the benefits of the value chain advantages of 3.5GHz. It concurrently promotes the maturity of the value chain of Non-Standalone (NSA)/Standalone (SA). The Company will closely monitor the schedule of 5G licensing and accelerate the upgrade of the auxiliary facilities for 5G. The Company is taking an active approach in researching and driving network co-building and co-sharing of 5G with various cooperation modes to lower the network construction cost. Upholding the principle of open cooperation and win-win development, the Company joins hands with the value chain to enjoy the new bonus to be brought by 5G.

Looking ahead, the Company will maintain precise investment with due regards to the technological advancement, regulatory policies, market demand and competitive landscape, etc.
In 2018, cooperation in Internet touchpoints with Tencent, Alibaba, Baidu, JD.com and Didi, etc. was deepened to facilitate precise and effective acquisition of new customers. The Company's 2I2C subscriber base reported a net addition of 44 million subscribers for the full year to bring the total to about 94 million subscribers. In connection with content aggregation, premium video contents from Baidu, iQIYI and Tencent, among others, were introduced to enhance the competitiveness of the Company's IPTV and mobile video content business. In industry Internet, the Company focused on Cloud Computing, Big Data, Internet of Things and Artificial Intelligence (AI), promoting in-depth cooperation with Tencent, Baidu, Alibaba, JD.com and Didi, etc. It entered into cooperation with Alibaba and Tencent for public cloud products, branded "WO Cloud", and hybrid cloud products. In deepening capital cooperation, the Company set up joint ventures, namely Yunlizhihui Technology, Yunjing Wenlv Technology and Yunjizhihui Technology, with Alibaba, Tencent and Wangsu respectively, aiming to better capture the market opportunities in industry Internet with an asset-light business model and accrue energy for its innovative development in the future.
In 2018, the Company persisted in enhancing network efficiency through precise investment, sharing and cooperation. While maintaining the edges of its network, the full-year capital expenditure continued to be under effective control at RMB44.9 billion. There had been ongoing improvement of network quality and customer perception in the focused regions and continued growth in Net Promoter Score (NPS) for both mobile network and fixed-line broadband. The Company also maintained industry-leading average uplink and downlink speeds in 4G networks and the industry-best indicators in network latency.

In 2019, the Company will accelerate 900MHz LTE network deployment leveraging the addition of spectrum resources at 900MHz. Full-year CAPEX including 5G trials is expected to be approximately RMB58.0 billion.
The objective of the dividend policy of the Company is to achieve a long-term, sustainable and steadily increasing dividend, with a view to maximising the shareholders' value. The declaration and payment of future dividends will depend upon, among other things, financial condition, business prospects, future earnings, cash flow, liquidity level and cost of capital. The Company believes such policy will provide the shareholders with a stable return in the long term along with the growth of the Company. Pursuant to the Companies Ordinance (Chapter 622 of the Laws of Hong Kong) and the Company's articles of association, the Company may only pay dividends out of profits available for distribution.

Taking into consideration the Company's profitability, debt and cash flow level, capital requirements for its future development etc., the Board recommended the payment of a final dividend of RMB0.134 per share for the year ended 31 December 2018. Going forward, the Company will continue to strive for enhancing its profitability and shareholders' return.
In 2019, the Company will devote itself to "Five New" establishment and high-quality development, and strive to exceed the key unlocking targets under the Employee Share Incentive Scheme of Unicom A Share Company for collaborative growth in returns of shareholders, corporate and employees. Its priorities include:
  • Network deployment - to adhere to the Focus Strategy and achieve dynamic capacity expansion
  • Network operation and maintenance – to continue to lower unit maintenance cost with optimised management
  • Fundamental businesses - to strengthen customer retention and exploit online channels and new touchpoints
  • Innovative businesses - to nurture capabilities with an emphasis on revenue growth
  • IT systems - to lay a solid foundation to drive innovation and cost efficiency
  • To continue to deeply advance reform to unleash maximum benefits
In 2017, adhering to the principle of "enhance governance, strengthen incentives, protrude core businesses and raise efficiency", the Company implemented mixed-ownership reform by using Unicom A Share Company, the controlling shareholder of the Company, as the platform. By introducing strategic investors and leveraging external resources and capabilities, the Company innovated the business cooperation model and achieved strategic business collaboration. It pushed forward system and mechanism reforms, established sound and effective corporate governance and market-oriented incentive mechanism to elevate corporate vitality and efficiency, creating better returns for shareholders and employees.

Through non-public issuance of new shares and transfer of existing shares of Unicom A Share Company held by Unicom Group, Unicom A Share Company successfully introduced 14 industry leaders as strategic investors who are complementary to the Company's business development. Approximately RMB75.0 billion was raised and injected into China United Network Communications Corporation Limited (CUCL), a wholly-owned subsidiary of the Company. All the proceeds will be used by CUCL for upgrading 4G capabilities, technology validation and enablement of 5G network related technologies, launching trial programmes in relation to 5G network and developing innovative services. The injection of external capital effectively enhanced the Company's financial position and improved its risk control capability.
Focusing on the enhancement of vibrancy and efficiency, the Company continued to deepen the innovative reform of its systems and mechanisms. Streamlining was advanced as a normalised initiative and staff were encouraged to move to sub-divided units and innovative business in an ongoing effort to optimise the Company's organisation and staff structure. Improvements were made to the Company's market-oriented incentives with the formation of a differentiated compensation system, staff selection and appointment mechanism linked to returns and efficiency. Unicom A Share Company employee restrictive share incentive scheme was successfully implemented to closely align the staff and shareholders' interests with those of the Company. Ongoing efforts were made to deepen the Company's sub-division reform and advance mixed-ownership reform at subsidiaries to stimulate vibrancy of micro-entity. Through steady implementation of operation reforms of contract-out, the Company's Yunnan Branch reported accelerated network construction and business growth, as well as significant enhancements in operating efficiency.
The objective of the employee restrictive share incentive scheme of Unicom A Share Company is to attract and retain high calibre employees and to achieve an alignment of interests among the shareholders, the Company and its employees.

Around 810 million restrictive shares of Unicom A Share Company were granted to about 8,000 key managerial staff and talents (including core employees of the Group) under the initial grant of the employee restrictive share incentive scheme of Unicom A Share Company. Unlocking conditions are prescribed for operating units and individuals at all level. The incentive shares are allocated on the basis of the contributions of the employees to the operating results. The grant price was RMB3.79 per share.

The restrictive shares of the initial grant have a lock-up period of 24 months and an unlocking period of 36 months. During the unlocking period, restrictive shares are unlocked in the ratio of 4:3:3 for each 12-month period. Restrictive shares shall be unlocked only if both corporate and individual performance conditions are met. The corporate performance conditions for unlocking the restrictive shares are:

Above-industry-average service revenue growth: compared to the 2017 basis, the growth rates of service revenue of Unicom A Share Company for 2018-2020 shall not be less than 4.4%, 11.7% and 20.9% respectively and shall not be less than the average of the three operators in the industry. The 2017 basis on service revenue is RMB249.02 billion.

Substantially faster growth of profit before tax: compared to the 2017 basis, the growth rates of profit before tax of Unicom A Share Company for 2018-2020 shall not be less than 65.4%, 224.8% and 378.2% respectively and shall not be less than the 75th percentile in the industry. The 2017 basis on profit before tax is RMB5.30 billion.

Fast improving return on equity: the return on equity of Unicom A Share Company for 2018-2020 shall not be less than 2.0%, 3.9% and 5.4% respectively.

For the details of Unicom A Share Company's share incentive scheme, please refer to the related Unicom A Share Company's public announcements filed with The Shanghai Stock Exchange on 11 February 2018.
Last updated: 04 April 2019