Three major Chinese telecom providers are required to cut marketing expenditure by 20 percent each year over the next three years.
It means China Mobile, the biggest player in the market, will have to reduce 24 billion yuan ($3.8 billion) in promotional activities during the period, with the total cutback among the three operators reaching $6.4 billion, a Sohu news report said on Wednesday.
The $6.4 billion cutback in expenditure amounts to almost twice the profits of China Unicom and China Telecom combined in 2013. It's also equivalent to one-third of the $19.5 billion that China Mobile earned in that same period.
China Mobile, China Unicom, and China Telecom, which are covered under the order issued by the state-owned Assets Supervision and Administration Commission of the State Council (SASAC), remain the largest telcos in China — indeed the world.
SASAC inspects and approves business activities of all government-run enterprises in China. The notice didn't specify the scope of "marketing expenses" among the operators, but they are generally interpreted as "costs incurred to implement enterprise marketing management and practical activities," including promotional and advertising costs as well as payroll, bonuses, and training fees directed to sales personnel in the outlets, the report said.
An immediate effect of the cutback will see a slump in terminal subsidies among the operators. The three operators indicated that they now plan to cut more than $1.6 billion in handset subsidies this year, with China Mobile accounting for nearly 70 percent of that figure.
In 2013, total mobile handset subsidies within China Mobile reached $4.24 billion, which recently decided to rewind about $1.13 billion in 2014 over last year. Subsidies at China Unicom will decrease to $970 million this year over last year's $1.26 billion. China Telecom has started lowering subsidy on handset since the end of last year.
Cutbacks in promotional activities are also likely to jeopardize the interests of frontline staff who are mostly paid based on sales performance. As many as 74 staffers left their jobs in China Mobile's Shenzhen bureau this March. Some frontline employees believe the wave of resignations among the three operators has just begun.