Operator subsidy policy adjustment: mobile phone manufacturers face great challenges

Under the dual effects of reducing marketing expenses and business tax to VAT reform, domestic telecom operators have begun to make major adjustments in terminal subsidy policies. Xi Guohua, chairman of China Mobile, who attended an event in Taiwan recently, said that China Mobile's terminal sales will mainly be bare metal in the future. This policy adjustment will also allow mobile phone manufacturers that were previously highly dependent on operators to make more strategic adjustments.

China Mobile's mobile phone subsidies to be drastically reduced

Xi Guohua made the above statement during an interview with the media at the "Mobile Broadband Development Summit Forum" in Taiwan. Regarding the adjustment of the subsidy policy, Xi Guohua said that China Mobile will continue to provide subsidies in the future, but will adjust from subsidizing mobile phones in the past to subsidizing users. In the future, China Mobile will mainly sell bare phones.

Xi Guohua also said that China Mobile plans to sell 200 million mobile phones this year. In the first half of the year, China Mobile has sold 100 million 3G mobile phones. In the second half of the year, it will mainly sell 4G devices and plans to sell 100 million 4G mobile phones.

In fact, it is not surprising that China Mobile reduced the purchase subsidy. As early as July this year, the State-owned Assets Supervision and Administration Commission of the State Council proposed a requirement for the three major telecom operators to significantly reduce marketing expenses. The operators must reduce marketing expenses by 20% every year, and the reduction must be continuous for three years. Based on this estimate, the total amount of marketing expenses reduced by the three major operators in one year is about 40 billion yuan, and the expenses for mobile phone subsidies are an important part of this.

China Mobile has previously stated that it will reduce marketing expenses by about 20 billion yuan this year, of which mobile phone subsidies will be reduced by more than 5 billion yuan compared with last year, with a total of about 21 billion yuan. However, since the reduction in marketing expenses was proposed in the second half of the year, China Mobile has already invested 15.3 billion yuan in mobile phone subsidies in the first half of the year. In the second half of the year, China Mobile's mobile phone subsidy quota is less than 6 billion yuan. This also means that China Mobile has little money left to subsidize mobile phones.

The situation encountered by China Unicom and China Telecom is similar to that of China Mobile.

Little impact on operator revenue

Since the 3G era, high subsidies for mobile terminals have become an important means for the three major domestic operators to attract new users. Especially with the introduction of some star terminals such as the iPhone, concepts such as "buy a phone for free" and "deposit phone bills and get a free phone" have become more and more familiar to domestic mobile phone users. When choosing mobile phone products and operators, it has become a habit for many people to compare which operator has the greater subsidy.

As the terminal subsidies of operators are reduced, the previous subsidy methods of "free mobile phones with deposits" and "free mobile phones" will be replaced by free mobile phone bills with purchases, and bare mobile phones will also replace the previous "contract phones" in the operators' business halls. This also means that consumers may need to spend more money on buying mobile phones in the future.

"Since the three operators are facing the same policy and their users are affected to a similar extent, the impact on the operators' revenue may not be too great in the end," said Fu Liang, a telecom industry analyst. At the same time, he said that this adjustment can also allow operators to take the opportunity to change their mobile phone sales model and rely more on the power of channels instead of relying mainly on their own sales. "There is no need to set a sales target of 100 million or 200 million units a year."

Mobile phone manufacturers face great challenges

Compared with operators, the biggest impact of the sharp reduction in terminal subsidies is actually on mobile phone manufacturers. Under the previous contract model, the shipment volume of mobile phone manufacturers was actually closely related to the subsidy intensity and promotion degree of operators. With the subsidies from operators, some domestic mobile phone manufacturers quickly increased their sales volume, and it was common for a product to sell millions of units.

"In the past, the market structure was that whoever controlled the operators controlled the market, and manufacturers who operated their own channels had a harder time," said a person in the mobile phone industry. "But when the subsidies from operators were drastically reduced, the manufacturers' own channels became more important."

In the era of operator dominance, the four domestic mobile phone manufacturers Huawei, ZTE, Lenovo, and Coolpad have become market leaders by virtue of their in-depth cooperation with operators, and are collectively known as the "China Cool Alliance". As the terminal policies of operators change, these manufacturers have also made major changes and increased their layout in social retail channels and e-commerce channels. For example, Huawei, Coolpad, and ZTE have announced that they will cut a considerable number of models, most of which are operator-customized models. At the same time, these manufacturers are also pushing their own e-commerce brand products. This is sending a signal of industry transformation to the outside world.

However, this pressure is not all bad for mobile phone manufacturers. "In the past, mobile phone manufacturers launched many low-cost and cheap models to meet the customization requirements of operators, such as price and pre-installation. Although there were sales, the user reputation was not good. In the future, market selection is destined to be product-oriented, which will allow manufacturers to devote more energy to improving the competitiveness of their products and increase the number of good mobile phone products on the market," said Cheng Bo, a mobile phone industry analyst.

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.