Warc, 11 July 2014
BEIJING: Leading international smartphone brands such as Apple and Samsung are likely to be hit by a cut in promotional spending by Chinese wireless carriers according to reports.
Bloomberg quoted "people familiar with the matter" who said that the country's three state-owned carriers – China Mobile Communications, China United Network Communications and China Telecommunications – had been told to cut expenditure on subsidies and advertising.
The total amount involved could be as much as 40bn yuan, or $6.4bn, over three years. The carriers are said to have overspent in previous years – around 60% of phones sold in China are subsidised according to analysts at UBS – and the cuts are expected to hit high-end devices like Apple's iPhone and Samsung's Galaxy S5.
Lower cost models provided by domestic manufacturers such as Xiaomi, Lenovo and Coolpad are likely to benefit as a consequence.
The top end of the market accounts for around 20% of all sales, with Apple taking around one third of that, a share it has gained rapidly. Apple's iPhone only became available in China in January when China Mobile began selling it; the carrier's chief financial officer later indicated that discounts for the device were one reason that subsidies on all phones would rise 29% to 34 billion yuan during 2014.
Samsung recently said that sales of its medium- and low-end smartphones were weak in China where it was already facing increasing competition from the likes of Xiaomi, which now offers devices costing as little as $100.
Another factor affecting sales of smartphones in China is the imminent launch of 4G networks. Fewer consumers are buying devices that run on slower 3G mobile networks, preferring to wait for faster 4G.
"The telecom operators are deploying the strategy of using low-end smartphones as they launch 4G services," Ricky Lai, a Hong Kong-based analyst at Guotai Junan Securities, told Bloomberg. "Coolpad, Xiaomi, Lenovo and most of the Chinese smartphone makers are all releasing 1,000 yuan 4G smartphones."
Data sourced from Bloomberg, Daily Telegraph; additional content by Warc staff