china-mobile-logo

Carriers in China Will Be Ending Device Subsidies, High-end Device Sales to Suffer as a Result

August 28, 2014 - Written By Ray Greer

Talk of the end of carrier subsidies on high-end devices ending has been going on for years. So far, in the US not much has come of this talk except from T-Mobile. T-Mobile has, in a way, gotten rid of subsidies by financing the full price of a smartphone to their customers. However in China, all carriers are ready to cut the cord, and will make selling high-end devices there very difficult for OEMs.

A device subsidy works very well to sell devices. Some examples are in the instances of any iPhone or Samsung Galaxy device launch on a carrier. Normally, these devices would cost upwards of $800, but thanks to carriers fronting the majority of the costs, they would only cost the consumer around $100 or $200. This upfront cost from the carrier usually causes a steep plunge in profit margins during the quarter of any popular high-end device release. This is part of the reason why Chinese carriers have decided to get rid of subsidies altogether.

China Mobile has the most subscribers in the world, and they have announced that they plan to cut subsidy costs by $2 billion. The rest of the carriers in China are expected to follow suit with about $1.9 billion cuts in spending on subsidies. Another reason these changes have been decided upon by carriers in China is orders from the Assets Supervision and Administration Commission. Chinese carriers were reportedly asked to cut costs by 40 billion yuan ($6.5 billion) over the course of three years. This was asked due to carriers overspending in subsidies and advertising. The question is how this will affect high-end device sales?

So far, for T-Mobile the subsidy cuts has been working out fine, with consumers paying the full price of the device over a two year period. However, there’s no word on how carriers in China plan on cutting the subsidy plans. If they plan on just asking consumers to pay full price for a device, this could mean a drop in high-end device sales altogether. When a consumer is looking for a device, the price tag reading over $800 per device, could be daunting. Which is why consumers may turn to low-end devices instead. According to analysts from IDC, Tay Xiaohan told Bloomberg, “The reduced carrier subsidies and rising local competition will affect consumers’ reception for the new phones,” Xiaohan continued to say, “The impact will be greater on the higher-end smartphones in the market, which the [Samsung Galaxy] Note 4 and iPhone 6 fall under.”

What are your thoughts, would you be fine without carrier subsidies? Or do you prefer them? Let us know down below or on our G+ page.