China Mobile said it will slash its marketing costs including handset subsidies by over 20 billion yuan ($3.2 billion) this year, as the mobile carrier reported an 8.5% drop in its net profit for the first half.
Chief financial officer Xue Taohai said China Mobile will cut the cost of providing handset subsidies to 21 billion yuan this year from the 34 billion yuan the mobile operator announced in March.
The company spent 15.3 billion yuan on handset subsidies in the first half of the year.
Together with other sales expenses China Mobile aims to reduce spending by over 20 billion yuan in 2014 and will continue to strictly control marketing costs in the next two years through a number of measures, such as strengthening the centralized management of advertising and promotion to reduce expenses, Xue told reporters at a press conference in Hong Kong yesterday.
Last week, smaller rival China Unicom also said it would cut spending on subsidizing smartphones in the second half of the year, including the new iPhone 6 – which Apple is reportedly due to launch next month.
The cutbacks are seen as a response to an order by the government for the three state-owned telcos to slash subsidy spending by a combined 40 billion yuan over the next three years.
While industry watchers expect the move is likely to push up churn rate, Xue said lowering subsidies would bring positive impact on the company’s profit in long term.
The world's largest mobile operator by subscribers yesterday saw its first-half net profit slide 8.5% to 57.7 billion yuan, as fierce competition from rivals and OTT players are bringing increased pressure on its slowing business.
Operating revenue fell 7.1% to 324.7 billion yuan, of which telecom services revenue gained 4.7% to 297.9 billion yuan.