Huawei could benefit as U.S. handset market shifts away from subsidies

Huawei is not giving up entirely on the U.S. market, even if it has concluded that it's not worth it to pursue a substantive network gear business amid continuing security concerns. Instead, the Chinese vendor will focus on building up its handset business, and it may benefit from an ongoing shift away from device subsidies.

Huawei has long been a player in the low-end U.S. smartphone market, delivering products to Leap Wireless' (NASDAQ:LEAP) Cricket, T-Mobile US' (NYSE:TMUS) MetroPCS and other carriers, sometimes with the carrier's branding on the device and not Huawei's. However, many of Huawei's flagship devices, such as the Ascend P2, have not launched in the U.S.

"What is stopping us is we don't have strength of brand at the high end," Executive Vice President Colin Giles told AllThingsD. Giles joined Huawei in July after spending more than a decade running Nokia's (NYSE:NOK) business in China.

Giles acknowledged it will take time to build up Huawei's brand presence in the U.S. market, as fellow Chinese vendor ZTE is trying to do. ZTE recently became the official smartphone to the Houston Rockets NBA team, for example, and is doing multiple tie-ins with the team. "If you are serious about the U.S., you need to commit on marketing," Giles said.

However, he acknowledged that Huawei has its limits: "We'll never have the budgets of an Apple (NASDAQ:AAPL) or Samsung."

Yet despite Huawei and ZTE's low brand recognition compared to Samsung Electronics, LG Electronics or HTC, the Chinese firms could benefit from the move away from device subsidies to device financing. All four Tier 1 carriers, sparked by T-Mobile, have launched handset financing and upgrade plans, and last week AT&T (NYSE:T) CEO Randall Stephenson heralded the shift away from subsidies as a "transformative" moment for the industry.

"When you're growing the business initially, you have to do aggressive device subsidies to get people on the network," he said, according to CNET. "But as you approach 90 percent penetration, you move into maintenance mode. That means more device upgrades. And the model has to change. You can't afford to subsidize devices like that." 

In a world in which subsidies do not matter as much, and customers get used to the idea that an Apple iPhone actually costs $650 on an unsubsidized basis, Huawei could compete on a more level playing field. If Huawei's high-end devices could compete on that ground, Huawei could get a leg up, since its smartphones are generally cheaper than those from Apple or Samsung.  

For more:
- see this AllThingsD article

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