Cellcos to cut handset subsidies and switch focus to profits

16 May 2005

China Mobile and China Unicom plan to cut the amount they currently offer in handset subsidies to customers, and focus instead on driving up profitability within their respective wireless businesses. China Mobile plans to spend less than the CNY8 billion (USD966.6 million) it forked out in subsidies in 2004 during the current year, according to Telecom Direct News, with the cellco’s chairman Wang Jianzhou saying that Mobile will only offer subsidies to high-value users. Meanwhile, Unicom has revealed it will trim the amount spent on subsidies as it looks to move its CDMA business into profit during 2005. The operator attempted to stimulate demand for CDMA in 2004 by offering heavy discounts on handsets. However, the tactic has met with mixed results: Unicom’s CDMA unit posted a loss last year despite throwing CNY6 billion at the business to provide cheap handsets, and Wang now sees the exigent need for the operator to drive down costs and bolster falling APRU levels in 2005. The shift in emphasis away from subsidies will no doubt cool sector competition in the short term, but the situation could change if the government decides to introduce fresh competition by licensing new mobile operators later this year.

China, China Mobile, China Unicom