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July 17, 2009
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The second largest Chinese cellular operator China Unicom (CHU) has reportedly inked a multi-year agreement with CandidSoft, a subsidiary of China Voice Holding Corporation. The US-based China Voice Holding Corp. is a publicly-traded holding company offering next-generation telecommunications products and services through its subsidiaries in China, primarily to Chinese government agencies and large business customers.
Under the terms of the nine-year deal, China Unicom and CandidSoft will collaborate for development, installation, maintenance and promotion of CandidSoft's SKY O/A office automation system under the ICT business brand. The joint-venture is a significant revenue-sharing opportunity for China Unicom as the company will be responsible for all the network support needed to operate the SKY O/A system. The agreement also encompasses installation and maintenance of solutions for CandidSoft's existing Chinese Government and large enterprise customer contracts in China's Guangxi Province.
In addition to providing its wireless, broadband Internet and telephone switching network, China Unicom will also oversee an array of functions including billing, customer support, and collections as well as installation and support for hardware, server and voice communication equipment. Additionally, the company will be responsible for promoting CandidSoft's ICT brand in China.
Under the restructuring mandate of Chinese telecom industry, China Unicom completed its merger with fixed-line service provider China Netcom in October 2008. The combined entity has strengthened its position in the domestic telecom space with approximately 138 million cellular subscribers, 33 million broadband connections and 109 million fixed-line customers as per the latest quarterly statistics.
But the company is not entirely out of the woods yet. It is expected to encounter integration problems associated with the merged China Netcom business. Also, the company operates in a more challenging business environment as stiff competition from China Mobile (CHL) and China Telecom (CHA) has resulted in lower revenue per user due to intense pricing pressure.
We feel the multi-year contract has further reinforced China Unicom's position as a full-service provider in the form of offering its wireline and wireless services to high-value customers in China. We reiterate our Hold recommendation for China Unicom.
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