China Unicom posts lower annual profit, tough 2017 looms

Sijia Jiang

* 2016 net profit falls 94 percent to 630 million yuan

* Expects 2017 capex of 45 bln yuan vs 72.1 bln in 2016

* Chairman says govt's determination for reform is strong

(Adds chairman quotes from press conference)

HONG KONG, March 15 (Reuters) - State-owned China Unicom

Hong Kong Ltd on Wednesday reported a drop in revenue

and profit for 2016, and is bracing for further challenges this

year as the Beijing government calls on telecommunications

network operators to lower rates.

Chinese Premier Li Keqiang last week called on telcos to

"raise speed, drop prices" by evening out local and

long-distance domestic call charges and removing domestic

roaming charges. The impact could see China Unicom booking a net

loss of about $103 million in 2017, estimated analysts at

Jefferies.

China Unicom said at an earnings briefing on Wednesday that

eliminating roaming charges would reduce its revenue by 1.58

billion yuan per quarter.

For 2016, the company's net profit fell 94 percent to 630

million yuan ($91.15 million), matching an estimate it disclosed

in January. Revenue fell 1 percent to 274.20 billion yuan.

China Unicom said it would not pay a dividend for 2016.

The telco blamed the decline on additional operating and

support expenses after disposing of network signal towers, as

well as a substantial increase in sales and marketing costs.

"We are determined to improve quality and enhance

efficiency, eliminate excess capacity and de-stock based on the

practical situation," China Unicom said in a statement to Hong

Kong's stock exchange.

The telco's capital expenditure in 2017 will drop 38 percent

from last year to 45 billion yuan as the company needs time to

prepare for 5G spending and ensure it does not repeat the

mistakes it made with 4G, China Unicom Chairman Wang Xiaochu

said at the earnings briefing.

The company has racked up heavy expenses to market its

fourth-generation (4G) mobile network technology, weighing

significantly on its bottom line.

Last year "was an expensive year for China Unicom to catch

up on its missed opportunities in 4G", said Nomura analyst Joel

Ying.

Chairman Wang said China Unicom aimed to add 60 million 4G

users in 2017, the same number as in 2016.

Wang also said a pilot mixed-ownership programme for

state-owned enterprises, in which China Unicom will be among the

first to take part, is pending government approval, and so he

was unable to provide an update on the matter.

"One thing that is for sure is the central government's

determination for reform is strong," he said.

China's three state-owned telecom operators transferred

their tower assets into a joint venture, China Tower Corp, in

October 2015 as the government worked to improve efficiency.

"The most important purpose of mixed ownership is to change

problems with the system ... that can greatly improve

efficiency," Wang said.

The proportion of 4G subscribers to mobile billing

subscribers rose 22.1 percentage points to 39.6 percent in 2016,

with the potential for growth still "enormous", the company

said.

China Unicom's stock closed up 0.1 percent ahead of the

earnings announcement, versus a 0.2 percent drop for the

benchmark Hang Seng Index.

($1 = 6.9116 Chinese yuan renminbi)

(Reporting by Sijia Jiang; Editing by Christopher Cushing and

Himani Sarkar)