In the first three quarters of 2019, facing new challenges in the industry development, the Company deepened execution of the Strategy of Focus, Innovation and Cooperation and accelerated the Internet-oriented transformation. It also strengthened the implementation of mixed-ownership reform. Innovative businesses maintained strong growth momentum, supporting the Company’s overall service revenue to remain steady at RMB 198,532 million. Further bolstered by effective cost control, the profit attributable to the equity shareholders of the Company grew remarkably by 11.9% to RMB 9,823 million in the first three quarters of 2019. The Company’s EBITDA amounted to RMB 73,145 million, up by 10.4% year-on-year. EBITDA as a percentage of service revenue was 36.8%.
Due to the impact of "Speed Upgrade and Tariff Reduction" policy, market saturation, keen market competition and diminishing 4G data bonus, the Company’s mobile service revenue decreased by 6.1% year-on-year to RMB 117,733 million in the first three quarters of 2019. Mobile billing subscriber ARPU was RMB 40.6. The Company gradually leveraged the in-depth coverage and wide coverage in rural area of the LTE 900MHz network, and stepped up the effort in Internet-oriented transformation on products, channels and marketing. It rigorously controlled customer acquisition cost and ultra-low tariff plans, and persisted in differentiated development, striving to avoid simple price competition. In the first three quarters of 2019, mobile billing subscribers registered a net addition of 9.69 million, reaching a total of 325 million. Within that, 4G subscribers registered a net addition of 31.22 million, reaching a total of 251 million.
The Company actively addressed the challenge of intense competition in the broadband market by adopting the strategy of "Big Video, Big Integration and Big Bandwidth". It built new 2I2H and 2B2H broadband marketing models to enhance marketing capabilities. In the first three quarters of 2019, fixed-line broadband subscribers registered a net addition of 3.57 million, reaching a total of 84.45 million. Fixed-line broadband access revenue amounted to RMB 30,959 million.
In innovative businesses, the Company expedited the capability development and scale expansion of key innovative businesses such as Cloud Computing, Big Data and IoT, etc. It engaged in consistent efforts to enhance innovation in mechanism and accelerated the innovative talent development while reforming the incentive and compensation system. With the “cloud + smart networks + smart applications” integrated sales model, the Company achieved continuous rapid breakthrough in innovative businesses. For the first three quarters of 2019, revenue from industry Internet business amounted to RMB 24,291 million, up by 40.8% year-on-year.
In December 2018, Ministry of Industry and Information Technology (MIIT) consented to the use of the frequency band of 3500–3600MHz nationwide by China Unicom for 5G trial. In June 2019, MIIT granted an official approval to China Unicom for the nationwide operation of 5G mobile communications services.

The Company was engaged in active deployment of 5G network and development in partnership with other parties along the value chain to capture the fast-mover market opportunities. During the first half of 2019, the Company led the market in the rollout of its 5G brand (5Gn), and focused the 5G trial in "7+33+N" cities in scale while launching friendly-user trial programmes in Beijing, Shanghai, Guangzhou and Shenzhen. Upon reaching an agreement with China Telecom, the Company has started working with China Telecom to co-build co-share one 5G access network nationwide to enhance network capability and reduce the construction and maintenance costs. It will conduct paced and precise investment in 5G construction with due regards to technological advancement, market demand and business requirements and the competitive landscape. It will drive the development of the 5G ecosystem while nurturing and consolidating its unique competitive edges in 5G. It will seize new business opportunities to deliver new value while enabling the capability and intelligence of the broader industry verticals.
According to the cooperation agreement signed on 9 September 2019, China Unicom and China Telecom will cooperate to co-build one 5G access network nationwide. Both parties will delineate and designate the regions for construction of 5G network by each party. The party who is responsible for the construction in a designated region will bear the relevant investment, maintenance and operating cost of the network. The 5G network co-build co-share will be based on co-share of access network and 5G spectrum resources but with core network to be constructed independently by each party. Both parties will jointly ensure a unified standard on network planning, construction, maintenance and service in the 5G network co-build co-share regions, and assure the same service level. The subscriber ownership will remain unchanged while independent branding and business operation will be maintained for each party.
The Company is of the view that the cooperation with China Telecom on 5G network co-build co-share, especially co-sharing the continuous 5G spectrum of both parties, will enhance the reduction of 5G network construction, operation and maintenance costs, while achieving 5G network coverage efficiently. It will also benefit the establishment of 5G service capabilities rapidly and strengthen the market competitiveness of 5G networks and services, while improving network investment return and asset operation efficiency, and leading to win-win for both parties.
The Company sought to strengthen strategic and business cooperation with the respective strategic investors focusing on areas where synergies could be claimed. In connection with touchpoints, it continued to advance online touchpoint and privilege cooperation with Internet companies, while exploring offline cross-sector cooperation with a view to precisely and effectively acquiring new users. As at the end of June 2019, the Company had close to 100 million 2I2C subscribers. It engaged in ongoing cooperation with Baidu's iQIYI and Tencent in IPTV contents and mobile video contents, with a view to enhancing user stickiness. In payment and finance, efforts were made to advance cooperation in "WO wallet" payment and the promotion of consumer credit, anti-financial fraud products as well as the jointly developed risk control-based credit score payment and financial products. As for smart home, efforts were directed towards the deep integration of fundamental telecommunication capabilities with the smart hardware and content applications of Internet companies, in order to create novel products with strong competitiveness. The Company continued to cooperate with Alibaba and Tencent in public cloud and hybrid cloud with the provision of cloud-network integration products, services and solutions to customers, which was in turn driving rapid growth in its government and enterprise customers business. At the same time, in Big Data, IoT and AI, the Company continued to further its in-depth cooperation and exploration with strategic investors to seek win-win cooperation, focusing on hot demands for, among others, financial risk control, target marketing, IoT security and smart home.
During the first half of 2019, the Company persisted in driving precise and efficient network deployment with a return and market-oriented approach. It gave priority to satisfying "5G+4G" premium networks and innovative businesses, etc. As a result, the Company saw ongoing enhancement of network competitiveness. Capital expenditure was under good control in the first half of the year and amounted to RMB22 billion. Thanks to the precise network investment, precise network optimisation and capacity expansion, the Company reported continuous improvements in network quality and customer perception in its focused regions. The Net Promoter Score (NPS) for both mobile network and fixed-line broadband increased as we maintained industry-leading average uplink and downlink speeds in 4G network and garnered the industry-best performance in network latency.

Full-year CAPEX for 2019 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 the second half of 2019, the Company will devote itself to “Five New” establishment and high-quality development. Its priorities include:
  • To uphold cooperation and actively deploy 5G
  • To effectively penetrate in sub-divided markets assuring steady development of fundamental business
  • To create innovative capabilities and strengthen innovative business
  • To regulate business practices and maintain healthy ecology
  • To persist in building a comprehensive and customer-first servicing system
  • To strengthen network and IT support capabilities; and
  • To fully unleash the system and mechanism advantages of reforms
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.
Aimed at increasing vibrancy and return, the Company continued to deepen the innovative reform of its systems and mechanisms. In the implementation of streamlining and re-organisation 2.0, it continued to streamline its organisation and encouraged staff to move to sub-divided units and innovative businesses in an ongoing effort to optimise organisational and staff structure. The Company continued to introduce reforms to the incentive mechanism and promoted differentiated compensation and diversified incentives. At some subordinate companies, long-term staff incentive and governance mechanism was established. Market based incentive system was further improved, targeting value creation. Intensive advances were made in mixed-ownership reform at subordinate companies, as its Yunnan Branch expanded the overall service and operation contract-out with privately-owned partners to the entire province following the pilot-run conducted in 2018. Meanwhile, ongoing efforts were made to deepen sub-division reform, leading to enhanced vibrancy at the micro-entities.
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.

According to the share incentive scheme, when judging whether the unlocking conditions for service revenue, profit before tax and return on equity, etc. are met, China Unicom A Share Company may exclude the impact of any major adjustments in industry policies by the State. The exact amount to be excluded will be determined by the board of directors of China Unicom A Share Company. 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: 28 October 2019