China has asked its mobile telecommunication carriers to reduce their massive subsidies for high-end handsets, a development that is likely to hurt the performance of leading foreign brands like Apple and Samsung in the world’s most populous market, Tencent reported.
The State-owned Assets Supervision and Administration Commission, the top regulator of the nation’s state-owned enterprises, asked China Unicom, China Telecom and China Mobile to slash marketing costs by up to 20 percent, or as much as 40 billion yuan (US$6.45 billion), this year.
More than a third of the carriers’ marketing budget is used for handset subsidies. The massive subsidies are one of the major driving forces behind record sales of high-end handsets.
Samsung mobile operators provide an average subsidy rate of 84 percent, while Apple and HTC were offered a subsidy rate of 74 percent and 80 percent respectively, according to data from ABI Research. That means as much as 70 to 80 percent of the upfront costs of the three mobile phone brands are subsidized by carriers.
As such, these first-tier foreign brands would struggle in China once the huge subsidies were scrapped. Since this year, inventories of some foreign brands have been climbing up to 12 to 14 weeks, much longer than three to four weeks during peak periods.
In the meantime, Chinese customers are shifting to more affordable domestic brands. For example, flagship models of foreign brands are sold above 5,000 yuan, while domestic handsets like Huawei P7 which offer similar functions cost less than half.
According to market research firm IDC, global smartphone shipments growth is expected to moderate to 19.3 percent this year, compared with 39.2 percent rise last year, while the average selling price will also decline. Samsung’s first-quarter market share has already retreated to 30.2 percent from 31.9 percent a year ago, while Huawei and Lenovo are gaining more market share.
– Contact us at [email protected]