China has told the nation’s three state-owned wireless carriers to cut marketing expenses because they overspent on subsidies and advertising for devices such as Apple Inc’s iPhone, people familiar with the matter said.
The state-owned Assets Supervision and Administration Commission (SASAC) told the carriers to cut promotional spending by a combined 40 billion yuan (US$6.4 billion) in three years, said the people, who asked not to be identified because the order has not been made public.
A reduction of subsidies would make high-end devices such as the iPhone or Samsung Electronics Co’s Galaxy S5 more expensive in the world’s largest smartphone market as the carriers expand fourth-generation services. That may benefit domestic smartphone makers such as Xiaomi Corp (小米), Lenovo Group Ltd (聯想) and Coolpad Group Ltd (酷派), which offer less costly models.
“If carriers do as asked, this is likely to benefit lower cost phones, including both local and foreign vendors that also have low-cost models, except for Apple,” Sandy Shen (沈哲怡), an analyst with Gartner Inc, said in an e-mail yesterday. “Of course, due to the cost competitiveness of local vendors they are likely to benefit more than foreign brands.”
The three state-owned carriers are China Mobile Communications Corp (中國移動), China United Network Communications Ltd (中國聯通) and China Telecommunications Corp (中國電信). Each has a Hong Kong-listed unit.
As many as 60 percent of smartphones sold in China are subsidized and any reduction could weigh on the high end of the market, a segment that accounts for about 20 percent of sales, analysts led by Steven Milunovich at UBS AG said in a note to clients. Apple had about 33 percent of China’s premium sales last year, UBS said.
China Mobile began selling the iPhone in January after six years of negotiations. The company has not received formal notification of the SASAC policy, said Rainie Lei (雷雨), a Hong Kong-based spokeswoman for the listed unit, China Mobile Ltd.
“The company is always working to increase revenue and control costs, including marketing costs,” Lei said in an e- mail on Tuesday.
The move came after the SASAC lowered the profit-growth target for companies under its regulation to 5 percent this year from 10 percent last year, the people said.
Jacky Yung, a spokesman for Hong Kong-listed China Telecom Corp declined to comment on whether the SASAC had ordered cuts in marketing expenses.
“The company has been incurring appropriate selling expenses according to the market development need,” Yung said in an e-mail.
China Telecom “has been implementing stringent control on the selling expenses to ensure operating profitability,” Yung added.
A China Unicom (Hong Kong) Ltd spokeswoman did not respond to an e-mailed request for comment.
“It is a trend that carriers would gradually reduce subsidy spending, given the financial stress, even without a push from the SASAC,” Ashley Sheng, a Shanghai-based analyst at SWS Research Co said in an e-mail yesterday “We believe the whole sector is likely to be hurt negatively, but of course high-end phones are most likely to be impacted.”
China Telecom shares fell 1.3 percent to close at HK$3.91 in Hong Kong trading. China Mobile dropped 0.5 percent to HK$75.80, while China Unicom lost 0.3 percent to close at HK$12.20.
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