China Mobile Ltd. saw its market value fall $9 billion amid subsidy cuts and restructuring costs. China Mobile is the largest of the three telecomm SOEs with over 800 million subscribers. Declining sales are attributed to a double bind of affordability: Subsidy cuts in tandem with new technology increase prices. The Chinese government mandated the company cut its sales and marketing budget by 20 percent. To meet such targets, China Mobile cut direct subsidies for phone hardware, significantly raising the cost to upgrade. This contradicts the companywide push to transition customers from the 2G to the new 4G network. However, China Mobile has encountered trouble realizing this transition. The trouble possibly indicates that the Chinese telecomm sector is a bargain market, with price being the largest motivator. Although wealth is increasing broadly across China, demand seems to be lagging behind prices. Ultimately, this hurts companies’, like China Mobile, bottom lines for now.
Incentivizing consumers to upgrade with technology proves difficult in a developing economy. However, Chinese consumers are markedly tied to their smartphones for e-commerce and various daily tasks. Thus, the demand will eventually catch up to prices, but until then, China Mobile and other SOEs will suffer from increasing costs.