Apple (NASDAQ: AAPL), Samsung Electronics and other makers of high-end smartphones could face steeper hurdles in the Chinese market after operators there said they will cut the amount of money they pay to OEMs to subsidize smartphones. According to Bloomberg, the payment cuts could amount to around $3.9 billion.
China Mobile, the world's largest operator by subscribers, has announced it will slash subsidy expenses by $2 billion, and other carrier are expected to cut payments by around $1.9 billion, according to analysts' estimates cited by Bloomberg. China Telecom just said today it will cut spending on subsidies without giving a figure. Earlier this month China Unicom President Lu Yimin said the company will lower selling and marketing expenses as a percentage of revenue in the second half, without supplying further details, according to Bloomberg.
The net effect is likely going to be that higher-end phones will remain more expensive and that local Chinese device makers producing lower-cost products will see a boost. The state-owned Assets Supervision and Administration Commission reportedly told carriers to cut costs by 40 billion yuan (around $6.5 billion) over three years because they overspent on subsidies and advertising.
"The reduced carrier subsidies and rising local competition will affect consumers' reception for the new phones," IDC analyst Tay Xiaohan told Bloomberg. "The impact will be greater on the higher-end smartphones in the market, which the [Samsung Galaxy] Note 4 and iPhone 6 fall under." Article