China's second largest mobile operator China Unicom ( CHU - Analyst Report ) added 3.1 million cellular subscribers in May, down 6.1% from the prior month. This takes the company’s total customer base to 215.84 million.

The company’s GSM subscriber base expanded to 161.34 million with net additions of 0.37 million customers, while its 3G subscriber base increased to 54.50 million with net additions of 2.73 million. China Unicom added lower 3G subscribers in May compared to the 2.92 million in April.

The 3G subscriber growth is riding on Apple Inc.’s ( AAPL - Analyst Report ) iPhone sales. Additionally, China Unicom is focusing more on improving its 3G data surfing service, and offering cheaper handsets and low cost services to woo new customers. These efforts are drawing more 3G subscribers, eventually leading to higher average revenue per user.

Despite the loss of exclusive hold on iPhones to China Telecom Corp. ( CHA - Snapshot Report ) , the company’s 3G subscriber growth remained encouraging in May relative to its major rivals. China’s mobile leader China Mobile ( CHL - Snapshot Report ) attracted only 2.4 million 3G subscribers while China Telecom added 2.6 million to its 3G customer base.

China Unicom expects its 3G subscriber base to reach 90 million by the end of the year, taking the 3G service revenue to RMB 70 billion ($11.1 billion) from RMB 40 billion last year.

Coming to the fixed-line business, the company is poised to benefit from expansion and speed enhancement of fiber optic service in its broadband business. China Unicom added 0.79 million broadband customers in May, bringing the total number to 59.67 million. Despite the ongoing fixed-to-mobile substitution, China Unicom succeeded in adding 0.17 million local access customers, bringing the base to 92.51 million in May.

We are maintaining our long-term Neutral recommendation on China Unicom. The stock retains a Zacks #4 (Sell) Rank for the short term (1–3 months).