Operator: Welcome to the China Unicom's FY ‘14 Annual Results. [Operator Instructions]. I would now like to hand the conference over to your speaker today Mr. Xiaoke Zhou

Xiaoke Zhou: Thank you operator. Good evening and good morning and good afternoon. On behalf of the company and the management I would like to welcome all of you to our global conference call tonight. My name is Zhou Xiaoke and I'm the Director of Investor Relations in Hong Kong. And I am the coordinator and translator for today's conference call. First of all, let me introduce the senior management team present tonight Mr. Lu Yimin, Executive Director and the President; Mr. Li Fushen, Executive Director and CFO; Mr. Zhang Junan, Executive Director and Senior Vice President; Mr. Li Jianguo [ph], General Manager of Finance Department; Mr. Wing Lam Cheung [ph], General Manager of Sales and Marketing Department and Madam Lung Cha [ph], Deputy General Manager of the Board Office. Before we start the Q&A session I would like to summary our key results for 2014. Just a reminder, our annual result announcement and presentation have been uploaded to our website at www.chinaunicom.com.hk. Later tonight the webcast of our analyst briefing will also be uploaded to our website at www.chinaunicom.com.hk. So here is the summary of our 2014 annual results, number one, transformation business model, promoting centralized and standardized operations, putting equal weight on customer acquisition and retention, focusing on development, quality and operational efficiencies. Number two, service revenue up 2.6%, revenue growth slowed down but still outperforming industry average by 3.9 percentage points. Number three, EBITDA up 10.5% and EBITDA margin up 2.7 percentage points to 37.9%, net profit up 15.8% and net margin up 0.5 percentage points to 4.9%. Number four, further optimize business structure with non-voice accounting for 61.9% of total service revenue and the mobile broadband plus fixed line broadband accounting for 63.7% of our total service revenue. Last point, network construction for future development, 158,000 mobile broadband base stations were added in 2014. Now, I would like to open to the Q&A. Operator, please?

Operator: [Operator Instructions]. The first question comes from Jimmy Cheung [ph] from Sanford Bernstein. Please ask your question.

Unidentified Analyst: I've just got one question, I noticed in the cash flow statement there is a loss on disposal of property, plant and equipment of about RMB1 billion. Can the management describe what it is and how it's recognized, specifically which quarter was it recognized in and how it's recognized in the profit and loss statement? Thank you.

Li Jianguo: [Interpreted]. The disposal asset, the value of disposal of assets in 2014 was about RMB1.1 billion in 2014 of which RMB0.89 billion occurred in 4Q 2014. There's two major parts of this disposal asset. One is that asset has already been depreciated and not in use anymore. So this asset disposal and that's part of the disposal asset. The other part is that this year we conduct the optic upgrade of our fixed line broadband network. So that resulted in another disposal asset in terms of PSTN so that's another part of the disposal asset. Thank you.

Unidentified Analyst: Can I just ask one follow up question what about PHS or telecom [ph] is that fully depreciated --how much of that is still sitting on the balance sheet? And when do you expect to write that off as well? Thanks.

Unidentified company Representative: Regarding the disposal of PHS asset it all occurred in the first half last year that was about RMB1.3 billion.

Operator: Next question comes from Arnand Ramachandran from Barclays. Please ask your question.

Arnand Ramachandran: Mr. Zhou, thanks for the call and thanks to management for taking the time. I have three questions. Firstly, with regard to - hi, can you hear me? Sorry, yes I can hear you. Mr. Zhou this is Arnand Ramachandran from Barclays. Thank you so much for the call and thanks to management. I had three questions, firstly on 4G I was wondering if management had any subscriber targets or any plans that [indiscernible] by year-end 2015. Secondly, I noticed management has done a great job on selling costs and handset subsidies. These are down RMB6 million for the year to RMB44 billion for the while year. I'm wondering if this is something we should expect to continue into 2015 and whether there are any specific cost initiatives that you'd like to share with us. Thirdly, given that you've guided for slightly higher CapEx a month if you could provide us with some guidance on depreciation and how we should expect that to trend into 2015. Thank you.

Li Yimin: I think here Unicom's key strategy on 3G and 4G actually accord integrated 3G plus 4G strategy what we call is mobile broadband strategy. So we don't try to tell the difference between 3G and 4G it's all up to what kind of models you use. If you use the 4G model you'll be talking about the 4G customer. If you use 3G you're talking about 3G customers. But either way we call it mobile broadband customers. So with our network construction of the 4G network next year we expect the 4G penetration well that will also increase rapidly in 2015. So here we expect by year-end 2015 we may have 100 million customers who use the 4G Smartphone. Mr. Li also answered the second question regarding the trend in selling and marketing expenses as well as handset subsidy. We expect both will continue to decline in 2015. Mr. Li Fushen answers the third question regarding the depreciation trend in 2015.

Li Fushen: The CapEx budget for this year is around RMB100 billion. So given this kind of CapEx budget we expect the growth rate in depreciation will continue to slowdown, will continue to slowdown compared with the rate we record in 2014 which was 8.3%. So we expect in 2015 the growth rate in depreciation and amortization could be around 7% to 8%. Thank you.

Operator: The next question comes from Danny Chu from Macquarie. Please ask your question.

Danny Chu: Just three questions, firstly this afternoon management talked about the increase of mobile data usage when subscribers migrate from 3G to 4G. But can management share with us what is the rough magnitude of output uplift when people move from 3G to become 4G subscribers, question number one. Question number two is can management provide us the split in terms of at the end of last year on page 10 slide, it indicated the company has 565,000 mobile broadband base stations. What is the split of that between 3G and 4G? And also with the increasing CapEx for 2015 what is the target 3G and 4G base station by end of 2015. Last question is also related to CapEx. I believe that two years ago company indicated the so called CapEx kick is behind us, but with the revision of CapEx guidance from last year RMB84 billion to RMB100 billion, can management discuss a little bit more behind the rationale. Is it because equipment's are getting more expensive or is it because we are targeting to push 4G even into the rural areas? Thank you.

Li Yimin: I can share some 4G subscriber information. That information is based on current offering our 4G service in 56 cities. If you looked at data traffic per subscriber actually for 4G customers actually definitely compared with 3G have been seeing a dramatic increase. Right now it's about 1 gigabyte per 4G user. And ARPU also is substantially higher in our 3G average ARPU. The 4G customer ARPU is around RMB140. I want to remind the investors here is that this information those data traffic and ARPU is for a very small group of 4G customers we have right now. When we get the 4G license ARPU guidance we viewed more 4G network in China and we open all our network, 4G network to all the customers. Now we expect probably even though they may use more data in total the ARPU trend may not be met substantially higher than the 3G ARPU. The reason behind the rate of high CapEx in 2015 is not because the equipment get more expensive actually the equipment could get - is getting cheaper. The key reason is now we try to add more base stations nationwide and we intend to add 356 more broadband base stations in 2015 that including both 3G and 4G. Our general target is that by the end our 3G network can cover 95% of the population. And our 4G network will cover all the cities, all the counties and also the major towns in China. Of 565,000 broadband base stations around 100,000 are 4G base stations the rest are 3G. And besides that all mobile broadband is put 3G and 4G together. So 3G network will offer broad coverage in China and 4G will offer more data service in hot areas. Thank you.

Operator: The next question comes from Rama Maruvada from Daiwa. Please ask your question.

Rama Maruvada: Two questions from me please. Firstly with regards to the mobile ARPU trend bar for the fourth quarter the fall seems to be rather steep. Could you explain what is driving this because the fall is much greater and sharper than the VAT decrease? And more importantly what do you expect the outlook for the mobile ARPU, blended mobile ARPU to be in 2015 on a year on year basis? The second one is with regards to your G&A expenses. They rose quite sharply in the fourth quarter just wondering whether - what to expect in 2015. And does VAT input credit does it apply to this line item or you will not be able to claim anything here. And finally maybe the third one if I can just chip in again on the base station side, can you give us a count of how many 2G base stations you had at the end of 2014? Thank you.

Xiaoke Zhou: The ARPU decline in 2014 is mainly due to two factors, one is VAT the VAT was implemented in June last year. And plus in addition to VAT is the adjustment in connection rate. So put these two together we estimate that ARPU, the blended ARPU actually declined by RMB2.8 in 2014. Another factor is the controlling selling and marketing expense the reduction in selling and marketing expenses has facilitated us to transform our business model, our selling and marketing business model. For example, when we tried to control handset subsidies we used the handset [ph] discount to replace the handset subsidy and that also hurt our top line or revenue or ARPU. So looking forward in 2015 I think even in the first half I think those kind of factors may continue to work on a year on year basis, but we believe with our further implementation transformation and also by shifting focus on the customer retention we believe the overall ARPU in 2015 will maintain stable compared with 2014.

Li Jianguo: Compared with third quarter G&A costs in 4Q actually still had considerable increase mainly because of two reasons. One is the disposal of ISAT [ph] that has already been depreciated in our balance sheet so that is around about RMB0.9 billion in 4Q. Another part is the inventory net impairment ran off and that's about RMB0.49 billion in 4Q. So that results in the record high G&A costs in 4Q. Thank you.

Li Yimin: Regarding the 2G base stations at year-end 2014, the number of 2G base stations were 424,000 at the year-end 2014. Thank you.

Operator: The next question comes from Donald Lu from Goldman Sachs. Please ask your question.

Donald Lu: First number one if the ARPU in 2015 remains stable compared with 2014, so how is it going to grow our top line in 2015? So what could be the subscriber target for the company in 2015? The same question regarding the margin trend in 2015. He noticed that in 2014 the margin improvement is mainly due to two factors. One is that interconnection targets reduction and that is the selling and marketing expense reduction. So both reductions probably may not offer a lot of room in 2015. So what could be the driver behind the margin improvement in 2015? The third question about the tower company. So what time will the company towers be transferred to the tower company?

Xiaoke Zhou: So in between, we're going to build our base stations, before the tower asset has been injected to the power companies. [Indiscernible] the first question. The company added 18 million mobile subscribers back in 2014. Actually, we expect we can add a similar number of subscribers in 2015, even though the overall mobile subs market is deteriorating. So the key drivers behind midterm target is, first of all, we tried to focus more on customer intention this year, so that can help us to lower the trend. Secondly is that we try to cover most of the countryside with our switch net over this year. When we cover 95% of the population, we think we have more growth room in the rural areas to cover more customers in the countryside. The third driver could be that this year we will promote so-called smart or family brand. That can really help us to offer - bundle all family members, so that can also help us to acquire more customers, so that's probably what we think about some of those trends for the company in 2014.

Xiaoke Zhou: Mr. Li Fushen answered the second question, regarding margin trend in 2015. He summarized three key drivers behind the continued marketing improvement in 2015. One is from trend market expenses. We expect the same market expenses as the percentage of subscribers will continue to decline due to the continued transformation, due to focusing more on customer intention and also more economic use of the resources. The second driver could be in terms of our network maintenance costs, expenses. We are pushing forward the all fiber optic network upgrade and also when we shut down certain networks - for example, [indiscernible] so those can help us to save certain network-related expenses. So that could be another driver behind margin improvements. The third one is that we think we can also have more efficient use of resources in terms of G&A costs. So put all of it together, we think we can see continued room for us to improve the overall EBITDA margin in 2015.

Xiaoke Zhou: Mr. Lu Yimin, answered the last question, regarding tower companies. The establishment of tower companies definitely can help company to save CapEx, to improve the efficiency of the investment. Without tower companies, I don't think RMB100 billion CapEx this year can help to reach that coverage, for example, for our 3G in the countryside covering 95% of the population.

Xiaoke Zhou: I think the tower company is proceeding smoothly and I think operators also try to cooperate. For example, we're conducting the survey on our tower assets, so that they can acquire those assets as soon as they can. And also, we also send our demand for towers to tower companies, so that kind of collaboration is already ongoing right now between China Unicom and the tower companies. So we remain quite optimistic about the outlook of the tower companies in China. Thank you.

Operator: The next question comes from Sydney Zhang. Please ask your question.

Sydney Zhang: Let me translate this gentleman's two questions. One is related to the CapEx and base stations. He wants to know what is the breakdown of the 356,000 mobile broadband base stations we're going to build in 2015 in them 3G or 4G. And he also noticed that CapEx, the company proposed RMB100 billion CapEx for next year and he noticed that in last year, the company allocated around RMB30 billion in terms of IT, transmission central and also like present infrastructure, tower company towers asset, central. So given tower company here in 2015, if you take another RMB10 billion from that, he's just wondering why the CapEx on those parts still remains high in 2015. And the second question, regarding the 4G trend and competitive trend in 2015, because right now, Unicom on telecom always saved the LPDR [ph] in essence, so will it be that the price competition in 4G market in this year?

Xiaoke Zhou: Mr. Li Fushen answered the first question. First of all, we looked at the mobile broadband base stations we're going to build in 2015, i.e., 356,000, of which around 200,000 are 3G base stations and the rest will be the 4G base stations. And the CapEx breakdown, like RMB100 billion CapEx for this year, roughly two-thirds will be invested into mobile broadband and also fixed-line broadband and the rest, or one-third, will be put into infrastructure, for example, transmission, IT systems and central. The reason this kind of part of CapEx remains is high is because in the past couple of years, we have been investing a lot of money into the so-called emerging business - for example, IDC, central, so that I think will continue for a couple of years, probably three to five years.

Xiaoke Zhou: Mr. [indiscernible] answered the second question. If we look at the overall price trend in Chinese telecom market, actually, in last 10 years, the average price of telecom service has been declining continuously. So right now, I don't think the room for further cut or further declines is very large, that's the first point. The second point is we're China Unicom. Last March, we launched our new package and that package definitely we tried - we compared with the old 3G, we have made some modifications. I don't think in the near future we're going to cut the price further. So not to leave the competition market, I think Unicom's solution is that we tried to put a so-called differentiated advantages, which can contribute an amount of factors, including network, products, services, terminals and central. It's not just the pricing. Thank you.

Sydney Zhang: [Foreign Language]

Xiaoke Zhou: Let me answer his follow-on question regarding the CapEx on IT, IDC transmission center. If we continue to spend that money in those categories for a couple years and so what could be the revenue trend in our fixed-line side generated from those investments? And also, he wants to know the specific breakdown, how much money we invest in IT systems, into IDC or into the transmission.

Xiaoke Zhou: Mr. Li Fushen answered these follow-on questions. Regarding the more specific breakdown of our CapEx into the IT system, IDC, transmission, central, I think I will say around 4% to 5% of our overall CapEx is related to the IT systems. And then, around 15% of our overall CapEx relates to IDC central. Okay and the rest probably is the transmission.

Xiaoke Zhou: Mr. Li Fushen answered the question regarding the revenue generated in emerging business. I think on fixed-line side, the future main driver could be the new packages we just launched in the market. We call this smart or family. That will bundle all the mobile broadband, fixed-line broadband, as well as Internet applications together. So that I think also relies on our continuing investment into those new areas. And regarding the IDC our computing, I think of course we have been investing a lot of money in the past year and we'll continue in the near future. So we expect the revenue generated from IDC and the committee will be doubled in 2015 to around RMB7 billion.

Operator: The next question comes from Michael Meng from Bank of China. Please ask your question, sir.

Michael Meng: Let me translate this gentleman's two questions first. First question, regarding the G&A cost in 4Q last year. He wanted to clarify that it's because of the disposal of the PHS asset or not.

Xiaoke Zhou: That I can answer you, Michael. It's not. It's related to the PHS. It's different.

Michael Meng: Okay, second question is about CapEx. He noticed that, okay, 44% of our RMB100 billion in 2015 will be allocated to mobile broadband and we also mentioned - the company also mentioned the company will build 356,000 mobile broadband base stations in 2015. So that means, okay, for each base station, the cost could be around RMB125,000, so that probably is just an equipment cost. Is my understanding correct?

Xiaoke Zhou: Michael, your understanding is correct. I think most of our budget allocated to the mobile broadband is equipment related and I think that's because, first of all, we can leverage the towers of tower company in 2015 and also, we can build new base stations by using our existing tower size, so that also can help us to save the related CapEx. And also, that 44% of the CapEx does not include the transmission. That transmission is in the other part. So in summary is that, okay, the 44% one is all about equipment. Thank you.

Operator: The next question comes from Leping Huang from Nomura. Please ask your question.

Leping Huang: Let me translate this gentleman's three questions first. The first question, regarding IDC. He noticed that the company will invest around 15% of the CapEx this year on IDC. And also, the company mentioned the revenue from IDC this year could be around RMB70 billion, so how can we justify the investor return in IDC? The second question, regarding the handset target for 2015, also, how many handsets the company sold in 2014. So when the company guidance that the company may have like RMB100 million 4G customers by year end, does that mean, okay, we're going to sell 100 million 4G smartphones in 2015? And the last question, about tower company, he guesses that the percentage of tower assets we'll own probably is more than the share we own in tower company. So how does that mean, as in how are we going to - offer any some kind of information or hints about the future of this kind of asset transaction.

Xiaoke Zhou: Mr. Li Fushen answered the first question, regarding IDC. He first clarified the real IDC investment or IDC CapEx is around 7% to 8% of the total CapEx. That 15% is including IDC and others, other related. So regarding IDC revenue, this year, we expect the revenue could be doubled to RMB7 billion and we expect IDC revenue will continue to grow rapidly, probably no less than 70% to 80% growth rate in the next couple of years.

Xiaoke Zhou: Mr. [indiscernible] answered the second question, regarding handset sales in 2014 and 2015. The company sold around more than RMB30 billion in 2014 and we expect we can sell more in 2015, probably like RMB40 billion. So here, I want to clarify that the target like 100 million 4G customers is different from saying that you sell 100 million 4G smartphones themselves, because a lot of customers will buy the 4G smartphones on the open market, not from Unicom. Thank you.

Xiaoke Zhou: Regarding tower company, the last question answered by [indiscernible], so right now I think that the shareholding structure of tower company remains about 40%, 30%, 30%. And I think the relative parties are conducting some kind of study how to grow this asset and what complies in what kind of a framework. So far, I don't seem to have any information to share with the market right now.

Li Yimin: So thank you. Due to the time limit, I think our global conference call will come to an end. So if you have further questions, please feel free to contact our IR teams in Beijing, Hong Kong and thank you all for you to participate in today's conference call. Thank you.

Operator: Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect. Thank you.