Apple Inc. (NASDAQ:AAPL) and Samsung Electronics Co. Ltd. face a massive subsidy cut by Chinese wireless carriers, Bloomberg’s Ed Lococo said in recent discussion on “First Up” .
The discussion about rivals Apple Inc. (NASDAQ:AAPL) and Samsung Electronics Co. Ltd. is on the heels of news that carriers in the Asian country will be decreasing subsidy given to new subscribers to purchase phones to the tune of $3.9 billion.
According to Lococo, China Mobile Ltd. (ADR) (NYSE:CHL) revealed this August that they will be decreasing the subsidy they give to subscribers to make phones more affordable by $2 billion.
Furthermore, China Telecom Corporation Limited (ADR) (NYSE:CHA) said yesterday that they will cut spending on subsidies to just 15% of mobile sales, down from over 18% in the first half of the year, Lococo noted. The Bloomberg technology news reporter also said that China Unicom (Hong Kong) Limited (ADR) (NYSE:CHU) has revealed it will also cut subsidies but did not specify by how much.
However, according to Lococo, their research suggests that both China Telecom Corporation Limited (ADR) (NYSE:CHA) and China Unicom (Hong Kong) Limited (ADR) (NYSE:CHU) will be cutting subsidies by about $1.9 billion. This brings the total subsidy cuts in China to about $3.9 billion.
Because of the new development, Apple Inc. (NASDAQ:AAPL) and Samsung Electronics Co. Ltd. may see a harder time selling smartphones in the country as subsidies from carriers help subscribers lower the cost of acquiring phones.
As an example, Lococo said that for Apple Inc. (NASDAQ:AAPL)’s iPhone 5S, China Mobile Ltd. (ADR) (NYSE:CHL) gives subscribers up to 88% of the total cost of the device. He noted earlier that sometimes people can also get free phones made by manufacturers like Samsung Electronics Co. Ltd. depending on the plans they will be getting from carriers.
Lococo added that Chinese carriers are cutting subsidies now because the Chinese government commission that overseas state-owned assets directed the three largest carriers in the country earlier in the year to cut spending on marketing and promotions by $6 billion over three years.
The concern, Lococo said, is that these carriers are spending too much on marketing and promotions. For example, China Mobile Ltd. (ADR) (NYSE:CHL) reported its fourth straight drop in quarterly income, the reporter added. This is putting the three carriers in a position this year to report their worst financial results since 1999, Lococo said.
Shareholders of Apple Inc. (NASDAQ:AAPL) includes the hedge fund Icahn Capital Lp managed by billionaire activist investor Carl Icahn. The fund reported about 52.76 million shares in the Cupertino, California-based giant by the end of the second quarter of the year.