China shakes up handset market; operators to cut subsidies, Apple loses technology patent case

9 Jul 2014

Chinese oversight authority the State-owned Assets Supervision and Administration Commission (SASAC) has ordered China’s trio of mobile network operators – China Mobile, China Unicom and China Telecom – to cut spending on subsidies and advertising by a combined CNY40 billion (USD6.48 billion) over the next three years, Bloomberg reports, citing anonymous sources. A spokeswoman for China Mobile claimed that the company had yet to receive notification of the policy from SASAC, but added that the company is ‘always looking to increase revenue and control costs, including marketing costs.’ A representative from China Telecom echoed her counterpart, stating that the CDMA provider ‘has been implementing stringent control on the selling expenses to ensure operating profitability’ but declining to comment on the reported order from SASAC. As previously noted by CommsUpdate, unconfirmed reports in Chinese media emerged early last month suggesting that SASAC had set a three-year target for the three providers to cut marketing and sales expenses by 50%.

In related news, Marbridge Daily cites an unnamed industry insider as saying that China Mobile will gradually cut its subsidies for 3G handsets in 2H 2014 in favour of supporting 4G-compatible devices. The cellco will also eliminate free handsets on its post-paid plans, replacing these offers with subsidised service packages. In further restructuring of its strategy, China Mobile will alter its method of doling out commissions for its retailers from a percentage of handset sales revenues to a calculation based on average revenue per user (ARPU).

Meanwhile, a Beijing court has ruled against US manufacturer Apple, upholding the patent of domestic firm Zhizhen Internet Technology on voice recognition technology. Reuters writes that Apple had taken the Shanghai-based company and China’s State Intellectual Property Office to court, claiming that Zhizhen’s patent rights to the technology were invalid. The decision in favour of Zhizhen, however, clears the path for the Chinese firm to continue its own case against Apple for infringing its intellectual property rights: Zhizhen had sued Apple in 2012 over the latter’s ‘Siri’ programme.