Chinese government calls for phone subsidy cuts; UBS sees iPhone impact


The Chinese government has told China Mobile (CHL -0.4%), China Unicom (CHU +1.3%), and China Telecom (CHA -0.3%) to slash phone subsidies and advertising by a combined RMB40B ($6.4B) in 3 years, Bloomberg reports.

The government came to its decision after concluding carriers are spending too much to promote the iPhone (AAPL -1.8%) and other high-end hardware. While a large chunk of Chinese phone sales are unsubsidized, subsidies have been growing as carriers try to sign up higher-income subs to 3G/4G postpaid plans.

A possible motivation: Apple and Samsung control much of the high-end Chinese phone market, while local firms (both OEM and white-label) control much of the mid-range and low-end.

China Mobile, which began selling the iPhone in January, has forecast its subsidy spend will rise 29% in 2014 to RMB29B ($4.7B). China Telecom says it has already been "implementing stringent control on [its] selling expenses to ensure operating profitability.”

UBS, generally upbeat about Apple this year, thinks subsidy cuts and Samsung price cuts could slow Apple's Chinese momentum. The company's Greater China sales rose 13% Y/Y in FQ2 to $9.3B.

The Bloomberg report comes as Samsung says it expects to report soft Q2 smartphone/tablet sales. Among other things, the company blames tough low-end/mid-range phone competition, and weak tablet market demand caused by phablet cannibalization and low upgrade rates. CIRP has observed iPad upgrade cycles are notably longer than iPhone upgrade cycles.

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Comments (16)
  • thotdoc
    , contributor
    Comments (1956) | Send Message
     
    Bye-Bye Samsung
    8 Jul 2014, 12:40 PM Reply Like
  • Shaduc
    , contributor
    Comments (2836) | Send Message
     
    Samsung is a MNC the size of ...
    Well Samsung Electric is a diversified MNC also ...
    8 Jul 2014, 12:48 PM Reply Like
  • techy46
    , contributor
    Comments (11019) | Send Message
     
    Bye-Bye Apple
    8 Jul 2014, 06:32 PM Reply Like
  • bjnflicks
    , contributor
    Comments (4335) | Send Message
     
    Watch AAPL sales in CHina increase by 25-50% this year, and Samsung's fall by nearly the same.
    8 Jul 2014, 10:02 PM Reply Like
  • Hank890
    , contributor
    Comments (2048) | Send Message
     
    This kind of protectionist move was entirely predictable, imo.
    8 Jul 2014, 12:58 PM Reply Like
  • canb888
    , contributor
    Comments (602) | Send Message
     
    It looks like the communist government is more capitalistic than the US government.
    Free un-subsidized pricing should be good for consumers in the long run and promote fair competition.
    8 Jul 2014, 03:40 PM Reply Like
  • Shaduc
    , contributor
    Comments (2836) | Send Message
     
    " communist government is more capitalistic than the US government."!!

     

    the subsidies in Shanghai are from what no real subsidies: 900 RMB off the retail then 1200 RMB fee to join that telecom's 3g/4g subscription, which for Cn isn't all that cheap for Cn-- as 3g/4g is aimed at the middle class and not the masses!
    8 Jul 2014, 09:06 PM Reply Like
  • bjnflicks
    , contributor
    Comments (4335) | Send Message
     
    THis will not slow down Apple in CHina. It will just the iPhone more of an aspirational status symbol and increase grey market purchasing in the US. Typically, Chinese grey marketers send hundreds of couriers to the US when the new iPhones come out, they buy all they can carry then hop on a plane back to China. And yes it will hurt high-priced Samsungs even more. In fact, Samsung may be finished in the above $500 market. They simply cannot compete, especially with the larger iPhone coming soon.
    8 Jul 2014, 05:40 PM Reply Like
  • techy46
    , contributor
    Comments (11019) | Send Message
     
    The miPhone and miTab are going to kill the iToys.
    8 Jul 2014, 06:33 PM Reply Like
  • Shaduc
    , contributor
    Comments (2836) | Send Message
     
    "The miPhone and miTab are going to kill the iToys."

     

    Those Xiaomi's modestly-priced and going cheaper Android phones have an interface problem, due to the LINUX OS used for the chip instructions.

     

    Further those don't have a decent Brand premium that at least Samsung enjoys.
    8 Jul 2014, 09:14 PM Reply Like
  • Tmigtkptmilmd
    , contributor
    Comments (65) | Send Message
     
    They are also targeting different markets. Apple targets the upper end markets, in which higher income consumers buy their products. They don't target the lower end since their margins would quickly evaporate.
    9 Jul 2014, 09:52 AM Reply Like
  • pocohonta
    , contributor
    Comments (655) | Send Message
     
    This protectionist move will certainly benefit the local players but will it hurt Samsung more or Apple? I think Samsung will be priced out of the market and Apple will also be hurt but to a much lesser extent because it is not competing in the Android space where the local players are. People who want IOS device will continue to flock to Apple.
    8 Jul 2014, 09:24 PM Reply Like
  • bjnflicks
    , contributor
    Comments (4335) | Send Message
     
    Apple will not be hurt. It will just make them even more popular. The public doesn't like being told "you can't have this really cool product". What that does is lift the product's value, not diminish it.

     

    \An d Apple has many new Apple stores opening in CHina to circumvent the whole subsidy issue, not to mention Apple.com and yes a huge grey market in Iphones too. Apple will not lose a single yuan over this. Samsung will though.
    8 Jul 2014, 10:06 PM Reply Like
  • bjnflicks
    , contributor
    Comments (4335) | Send Message
     
    UBS has been wrong about an awful lot lately. They seem to attack the best companies and then support the losers instead. They seem to have some kind of contrarian leadership problem. Trying to bottom fish or something.

     

    Notice they did not criticize Samsung which is the real loser, much more vulnerable than Apple because they are being clobbered by the superior Apple products and software and are hemoraging premium market share to Apple, especially in China. But also in the US and everywhere now. Why didn't UBS mention that?

     

    So for them to attack AAPL means AAPL is probably the best available investment for your money. gg
    8 Jul 2014, 09:58 PM Reply Like
  • bjnflicks
    , contributor
    Comments (4335) | Send Message
     
    The Russian telcos and government tried the same strongarm tactics vs Apple last year. Guess what happened. Customers went around them both and just bought from Apple-com. Apple had 95% growth in Russia despite the government and telcos trying to mafia them.

     

    The fact is, consumers want Apple products,m in China, Russia and everywhere else, and that is not going to be stopped or slowed down much at all.

     

    samsung is the only victim here. At the worst possible time for them too.
    8 Jul 2014, 10:04 PM Reply Like
  • skibimamex
    , contributor
    Comments (485) | Send Message
     
    just because some idiott speculates that this is a protectionist move, don't believe it.

     

    100% of iPhones are made in China, and pretty much every single other OEM's as well.

     

    I just opened the back of my Samsung Galaxy -- guess what? "Made in China"

     

    There is no "protectionist conspiracy". the gov't watchdogs don't feel that chinese consumers should spend beyond their means and the large subsidies are compensated with higher recurring service fees so the high subsidies on higher priced phones acts as what is viewed as an undesired inducement for the chinese consumer of limited means to over extend themselves financially. Very paternalistic gov't those chinese.
    9 Jul 2014, 01:18 AM Reply Like
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