The decision of China's telecommunication regulator to curb the marketing expenses of the country's top carriers will hurt Samsung and Apple in the world's largest phone market but boost local players, reported Bloomberg.

The report quoted anonymous sources saying that the Assets Supervision and Administration Commission told national carriers to cut costs because they overspent on subsidies and advertising for devices such as iPhone.

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China Mobile Ltd., the leading carrier, has responded by cutting subsidies by US$2 billion, Bloomberg said. China Unicom, the No. 2 carrier, will cut selling and marketing expense as a percentage of revenue in the second half of this year, the report added.

The move reverses a practice that helped boost sales of high-end phones, but has eroded the profitability of the carriers. China Mobile's shareholders cheered the move, with shares rising to the highest in six years yesterday in Hong Kong trading.

The move is expected to help China's top three carriers cut US$6 billion in costs and could weaken Samsung and Apple, which have surrendered its market leadership and failed to crack the top five in sales, respectively.

It is also seen to favor Chinese players such as the Xiaomi Corp and Lenovo Group Ltd, which offer cheaper handsets with similar features.  

With 15 million units sold in the second quarter, China's handset market is now ruled by Xiaomi with a 14 percent share compared to erstwhile leader Samsung, which controls 12 percent, according to industry analyst Canalys. The report noted that Xiaomi has had a sharp rise, with the local brand not even in the top five vendors last year.  Before succumbing to Xiaomi, Samsung held the market lead in China since the fourth quarter of 2011, said Canalys.

Bloomberg added that Chinese consumers are beginning to warm up to local higher-end phones as manufacturers improve quality and features of these local phones and then offer them at much lower prices.

TagsChina Mobile