• Sales of the iPhone Could Falter in China as Government Asks Carriers to Cut Subsidies

    Chinese authorities have begun to pressure the nationís massive, state-owned wireless carriers to roll back marketing expenses by as much as $6 billion, an edict that could force cuts to handset subsidies that one analyst believes may have an impact on sales of high-end devices like the iPhone. Chinaís State-owned Assets Supervision and Administration Commission, which oversees the countryís numerous state-owned companies, has asked China Unicom, China Telecom, and China mobile to cut their marketing costs by roughly 20%. More than one third of those cuts are likely to be handset subsidies according to UBS analyst, Steven Milunovich.

    Due to sales and luxury taxes, iPhones in China sell for $100 or more over their cost in other countries. The premium, combined with the relatively low per-capita income of Chinese consumers, has increased the importance of subsidies and other financial instruments like payment plans in selling the devices.

    The Cupertino California company would not only be the only smartphone maker affected by the cuts, but it does own 33% of the market for handsets over $500. Since the Chinese market is relatively immature, Milunovich argues that it is difficult to predict how the market would respond. The analyst wrote the following about Appleís growth in China:

    Elasticity of the high-end user remains untested though any subsidy cuts could slow recent momentum.
    On top of reeling in costs, SASAC also plans to create a new state-owned company that would own and control mobile phone towers. Milunovich worries that this could slow down the rollout of Chinaís 4G infrastructure, forcing China Mobile to cut its 4G subscriber targets, of which the iPhone accounts for the lionís share, in half, slowing down growth.

    Source: UBS via AppleInsider
    This article was originally published in forum thread: Sales of the iPhone Could Falter in China as Government Asks Carriers to Cut Subsidies started by Akshay Masand View original post
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