China Mobile

Network carriers' subsidy cuts hit Apple and Samsung in China

PUBLISHED : Monday, 18 August, 2014, 4:01am
UPDATED : Monday, 18 August, 2014, 6:28am

The world's biggest phone market is getting a lot tougher for Apple and Samsung Electronics.

China Mobile, the biggest carrier, is cutting subsidies by US$2 billion in a sign the industry is less willing to pay for expensive devices like the iPhone and Galaxy S. That may accelerate growth for Chinese makers Xiaomi and Lenovo that offer similar features for lower prices.

The 38 per cent cut comes after government regulators told the mainland's three carriers to lower marketing expenses, changing a practice that spurred sales of premium handsets to a wealthier population. The order may save the companies US$6 billion and further shift the balance of power after Samsung lost the top spot in market share last quarter and Apple failed to crack the top five in sales.

"High-end flagship phones will suffer the most from the regulation due to their prohibitive prices in the China market without subsidies," said Lydia Bi, a Shanghai-based analyst at researcher Canalys. "Samsung and Apple, as the two major high- end flagship phone makers, have the most to lose."

China Mobile investors supported the move, with shares rising to the highest in six years yesterday in Hong Kong trading. Lowering subsidies should be positive for profit, chief financial officer Xue Taohai said in Hong Kong this week after the firm announced its fourth-straight drop in quarterly net income.

China Mobile will spend 21 billion yuan (HK$26.4 billion) to offset the costs of phones for customers this year, compared with the 34 billion yuan the carrier planned to spend, Taohai said. The company already spent 15.3 billion yuan in the first half.

An Apple spokeswoman declined to comment, while a Samsung spokesman did not respond to a request for comment.

The carrier in December agreed to offer the iPhone after six years of negotiations. California-based Apple said iPhone sales rose 48 per cent on the mainland in the quarter to June 28.