China’s three major operators have been told by the State-owned Assets Supervision and Administration Commission (SASAC) to lower their expenditure on marketing.
China Mobile, China Unicom and China Telecom must lower their combined marketing spend by CNY40 billion ($6.4 billion) over the next three years. The three have reportedly overspent on advertising and subsidies for luxury devices, such as the Apple iPhone and Samsung Galaxy S5, in order to drive adoption.
Roughly 60% of phones sold in China are subsidised, meaning that the market could be significantly impacted if operators ease off the practice - in particular, the higher end of the market, which constitutes 20% of device sales. While sales of imported luxury devices will likely fall, the move could have a positive effect for domestic phone vendors such as Xiaomi, Lenovo and Coolpad.
China Mobile only began offering the iPhone in January this year, but the device is already projected to be responsible for a 29% annual increase in the operator’s subsidies over 2014, according to CFO Xue Taohai. Before it was offered by China Mobile, the iPhone accounted for around a third of China’s high end device market in 2013.
The big three operators are all seeing a fall in voice and SMS revenue due to the increasing popularity of free messaging services. This is despite the vast investment that each of them has made into their 4G rollouts.
SASAC has halved the profit-growth target for companies covered by its remit to 5% in 2014, down from 10% in 2013.