China Unicom (Hong Kong) Ltd, the nation's only mobile operator offering Apple Inc's iPhone, said it will sell a smartphone developed in-house and called the UPhone by the end of this year.

The UPhone will run on a "totally new" operating system that Unicom developed based on Linux, Zhang Zhijiang, who heads the company's technology department, said in an interview on Thursday at the Mobile Asia Congress in Hong Kong. The phone is being developed with Okwap, Huawei Technologies Co and ZTE Corp, he said.

Unicom Chairman Chang Xiaobing has delivered four straight quarters of profit drops as he failed to capitalize on Unicom's iPhone exclusivity and a third-generation wireless network that analysts say is superior to that of the industry leader, China Mobile Ltd.

In the third quarter, Beijing-based Unicom added about 38 percent fewer 3G users than China Mobile even after rolling out the iPhone 4.

The limited details released by Unicom on Thursday make the UPhone sound more like a low-end smartphone rather than a product comparable with the iPhone, said Paul Wuh, a Hong Kong- based analyst at Samsung Securities Co. Unicom's Zhang said the name of the device is a deliberate reference to the iPhone and other competing products such as Lenovo Group Ltd's LePhone.

"U means Unicom and 'phone' is just for phone," Zhang said. "We just wanted to compare with the iPhone and LePhone."

Unicom shares gained 1.32 percent to HK$10.76 ($1.39) on Thursday in Hong Kong trading. Shenzhen-based ZTE rose 3.89 percent to HK$29.35 on Thursday.

The UPhone is the second collaboration between Unicom and ZTE this month, after they paired up to launch the online store "WoStore" to sell mobile applications in the mainland and Hong Kong. The companies described WoStore as serving "all open smartphone platforms except for iPhone".

Unicom is more than a year behind its larger rival in developing a smartphone operating system after China Mobile released its Open Mobile System based on Google Inc's Android software last August. That was followed by a line of compatible devices called Ophones.

It remains to be seen how much support from handset vendors Unicom's new operating system will get, said Wendy Liu, a Hong Kong-based analyst with Royal Bank of Scotland Group Plc.

"We need to see the adoption rates and how much backing Unicom and its vendors put behind this product," Liu said. "It is Unicom's effort towards being something more than a mere provider of data capacity, which is the nature of its deal with Apple."

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