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China Mobile cuts subsidies with mass market focus

Bowing to governmental pressure to reduce subsidies, China Mobile is shifting the target of its marketing campaigns to non-contract devices.

In addition, the world’s largest mobile provider is revising its tariffs for postpaid smartphones.

The operator, which has around 790 million connections, spent CNY15.3 billion ($2.48 billion) on subsidies in H1. It aims to drastically reduce this figure to CNY5.7 billion in H2. Its total spending for 2013 was CNY34 billion last year.

China Mobile chairman Xi Guohua confirmed that the operator would court the mass market, noting that the “market performance of mobile phone sales will depend on the cost performance”.

All three state-owned operators in China were told earlier this year by the country’s Assets Supervision and Administration Commission that they must reduce subsidies by a combined CNY40 billion over the next three years.

China Mobile General Manager He Ning has stated that the operator was selling 6.5 million 4G phones per month before July, and claimed that this figure would soon rise to 10 million. The spending cut is therefore unlikely to affect its annual goal of shifting 100 million 4G handsets. The operator will have launched 700 4G models before the end of 2014, with 500 of these in the CNY1000 ($162) bracket.

Direct device subsidies will be replaced by offering customers airtime for voice packages. Rather than offering a free or very cheap device, Chinese contracts typically require upfront payment for the device then offer a monthly rebate across a two-year duration. Providing a discount on voice dodges the definition of subsidy while reducing the price of the handset.

 

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