China Said to Tell Carriers to Cut Marketing Costs

China told the nation’s state-owned wireless carriers to cut marketing expenses after concluding they spent too much on promoting high-end devices such as Apple Inc. (AAPL)’s iPhone, according to people familiar with the matter.

The State-owned Assets Supervision and Administration Commission told the three carriers to cut spending on subsidies and advertising by a combined 40 billion yuan ($6.4 billion) in three years, said the people, who asked not to be identified because the order hasn’t been made public. China United Network Communications Ltd. (600050), China Mobile Communications Corp. and China Telecommunications Corp., each have a Hong Kong-listed unit.

China Mobile, which began selling the iPhone in January after six years of negotiations, cited the Apple device as one of the reasons subsidies on all phones will rise 29 percent to 34 billion yuan this year, Chief Financial Officer Xue Taohai said in March. The company hasn’t received formal notification of the SASAC policy, said Rainie Lei, a Hong Kong-based spokeswoman for the listed unit, China Mobile Ltd. (941)

“The company is always working to increase revenue and control costs, including marketing costs,” Lei said in an e-mail today.

The move comes after SASAC lowered the profit-growth target for companies under its regulation to 5 percent in 2014 from 10 percent in 2013, the people said.

Jacky Yung, a spokesman for Hong Kong-listed China Telecom Corp. (728) declined to comment on whether SASAC ordered cuts in marketing expenses.

Messaging Applications

“The company has been incurring appropriate selling expenses according to the market development need,” Yung said in an e-mail. China Telecom “has been implementing stringent control on the selling expenses to ensure operating profitability.”

A China Unicom (Hong Kong) Ltd. spokeswoman didn’t respond to an e-mailed request for comment.

The Hong Kong unit of China Mobile, the world’s biggest wireless carrier by users, is projected to report an 18 percent drop in net income, according to the average of 23 analyst estimates compiled by Bloomberg. That would be the largest since 1999.

The carrier has said it faces challenges this year including costs to roll out fourth-generation network services, and a decline in revenue from voice and text services as users switch to free instant messaging applications such as Tencent Holdings Ltd. (700)’s WeChat.

Carolyn Wu, a Beijing-based Apple spokeswoman, couldn’t be reached by phone and she didn’t immediately respond to e-mailed request for comment.

To contact Bloomberg News staff for this story: Steven Yang in Beijing at kyang74@bloomberg.net; Edmond Lococo in Beijing at elococo@bloomberg.net

To contact the editors responsible for this story: Jessica Zhou at jzhou75@bloomberg.net; Michael Tighe at mtighe4@bloomberg.net Aaron Clark, Robert Fenner

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