ZTE Undercuts Rivals as U.S. Carriers Reduce IPhone Subsidy

ZTE Corp. -China’s second-largest maker of phone equipment- said it has a chance to undercut competitors including Apple’s iPhone on handset prices as carriers may seek to reduce spending on subsidies.

“Right now is a good opportunity,” George Sun, ZTE vice president of corporate strategy, said in an interview April 23. “We can do a balance between price, and the features and functions we provide” on handsets.

The opening for ZTE comes as carriers that have absorbed part of handset costs on expectations of making the money back on usage fees look to trim those costs, boosting demand for lower-priced phones. Verizon Wireless, a U.S. partner of Apple, said this month it will begin charging customers $30 to upgrade to a new phone.

Verizon’s addition of the upgrade fee suggests mobile-phone service providers may take steps including trimming subsidies to keep sales of the iPhone from reducing margins, Walter Piecyk, an analyst at BTIG LLC in New York, said.

“We encounter concern from carriers, and everyone is showing their intention to cut” subsidies, Sun, 43, said in Shenzhen, where ZTE is based. “There is a trend to try to be more rational and cut those kind of subsidies to a more reasonable level. That gives ZTE more opportunity.”

Sun said he had no specific information on which carriers will cut subsidies, or by how much.

ZTE became the world’s fourth-largest mobile-handset seller in the fourth quarter, behind Nokia Oyj, Samsung Electronics Co. and Apple, as Bloomberg stated.

ZTE’s Smartphone sales will more than double this year as it gains market share in Europe, North America, Brazil and Japan, Executive Director He Shiyou said at the company’s annual analyst day on April 23. The company plans to sell between 40 million and 50 million units, from 15 million in 2011, He said.

Huawei Technologies Co., ZTE’s larger domestic rival, has been asked by carriers to make more high-end devices that could compete with the iPhone, Shao Yang, chief marketing officer of the company’s mobile device business, said today.

Sun, formerly chief executive officer for U.S. operations, became ZTE’s head of corporate strategy last month.

ZTE expects smartphones and mobile devices including tablet computers to contribute more of the company’s profit, Sun said. By 2015, mobile devices will account for 50 percent of ZTE’s sales, up from 40 percent this year, He said.