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Why it’s about to get tougher for Apple to grow iPhone sales in China

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Like other handset makers, Apple has continuously said how important China is for its phone sales. Apple may have to rethink its handset strategy however, as the world’s largest carrier, China Mobile, is reducing the amount it spends to subsidize hardware by $2 billion this year. Bloomberg reported the news on Friday, noting that as of June, the carrier had a whopping 790.6 million subscribers.

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Hardware subsidies paid by carriers help offset the high price of smartphones so by reducing this spend, lower-costing full price phones could be more attractive financially to a bigger group of consumers. [company]China Mobile[/company] customers therefore could gravitate towards cheaper Android phones instead of [company]Apple’s[/company] handset. Huawei, ZTE, Lenovo and Xiomi are all likely to benefit from this situation, as might Samsung to a degree since it does have low- to mid-priced phones on the market.

China Mobile made the decision to reduce subsidies because China’s Assets Supervision and Administration Commission told the three major Chinese carriers that they are overspending on such costs, as well as on advertising, says Bloomberg. It’s entirely possible that with higher phone prices, China Mobile could lose customers to its main rivals, China Unicom and China Telecom. But neither has the subscriber base nor the network infrastructure of the world’s largest carrier.

China Mobile still plans to spend more than $3.4 billion in phone subsidies this year, so it’s not eliminating them entirely. However, the cut is a 38 percent reduction, which could affect iPhone sales in the country, depending on how the carrier employs the remaining subsidy pool.

9 Responses to “Why it’s about to get tougher for Apple to grow iPhone sales in China”

  1. Rann Xeroxx

    Apples biggest success was that they were first in getting the modern smartphone right. They also piggy backed on their successful iPod dominance with getting people hooked into the iTunes ecosystem.

    This is simply not the case in areas like China. Apple is going on equal footing with Android with regards to ecosystem. And they have plenty of disadvantages such as price, form factor, custom UIs, custom app stores, etc.

    Apple will cont. to be a successful company making billions but unless they can come up with the next disruptive technology market, their stratific growth maybe coming to an end.

  2. This is good news for Apple. Chinese consumers paid full price ($899 for iPhone 5S, $699 for iPhone 5C, plus the monthly fees. The subsidies went to the cheaper free phones made by Chinese. If government cut the subsidies, they will effect those low to mid level phone manufactures, not high end Apple’s.

  3. Steffen Jobbs

    Apple can do the same thing in China as it does in India. Offer a low-interest Apple personal finance option for iPhones. Apple has plenty of money to be able to run a loan institution so I see no reason why Chinese consumers would have to lose out if Apple really wanted to sell iPhones to them. If carriers can offer subsidies then why not Apple. In a few ways, I would figure it would give Apple an edge in smartphone sales. Apple no longer has be reliant on carrier subsidies for survival. I’d love to hear what the Wall Street boo-birds would say to that.

  4. It’s a lot less relevant than it sounds.
    Subsidies are substantial for very costly (for China ) subscriptions and tiny for subscriptions that people can actually afford. The average revenue per user in their last reported quarter was 10.40$, such a low ARPU just doesn’t allow for substantial subsidies.
    The vast majority of subscribers are also on 2G (so very cheap plans), the number that matters now is not the 790 mil but the 253 mil 3G/4G subscribers.
    Besides, the lack of subsidies helps competition in the market and that’s good for consumers and start-ups.

    • milindrao

      You mean it will take a dive. Every country where the subsidy is low or non existing, Apple’s market share takes a nose dive. Only in opaque markets like the US and Japan with subsidies and a generally high contract prices does Apple do well. Basically Android users have been subsidizing Apple users.