BEIJING - Apple Inc. (AAPL) might have a chance to pep up cooling iPhone sales in China if it finally can reach a deal with the world's biggest phone carrier.
Once China's must-have gadget, the
iPhone has seen its explosive popularity squeezed as the market filled with
lower-priced rivals from Samsung to ambitious local brands. Some analysts say
anybody who wants an iPhone and can afford it already has one.
That might change if Apple can gain
access to China Mobile Ltd.'s network and a new pool of potential customers.
After a yearslong courtship, there are
signs the two corporate giants might finally be edging toward a deal. The Wall
Street Journal said it could be announced as early as this week, though China
Mobile spokespeople have said the companies were still talking.
On Monday, China Mobile's website was
taking orders for a mystery phone called "Ming Xing," or Bright Star.
It showed a handset silhouette like that of an iPhone but gave no brand name.
The timing looks right. Just as
Apple's sales growth in China cools, China Mobile received approval Dec. 5 to
start operating the world's fourth-generation network and needs to market it.
State-owned China Mobile has more than
750 million mobile accounts. But its new 4G system -- based on China's homegrown
TD-LTTE standard -- is unfamiliar to demanding Chinese customers.
The iPhone's glamor might help to win
"Leveraging this brand, China
Mobile could build a reputation for their network," said analyst Jane
Zhang of Gartner.
For its part, Apple would gain access
to a bigger, more robust network. It has faster data speeds and suffers fewer
complaints about dropped calls than those of two smaller state-owned rivals.
"They need China Mobile more than
China Mobile needs them," Zhang said.
How the benefits shake out for each side will depend on what deal the two giant companies, each with powerful leverage, can strike on how to split the costs of iPhone handsets. And on how Apple copes with intense competition from Samsung and other brands.
Forecasts of additional iPhone sales
in China vary widely, from 10 million to as many as 40 million units. That
would be on top of the 50 million iPhones analysts estimate have been sold in
China in the past 2 1/2 years.
Apple already has agreements with
China's two smaller state-owned carriers, China Telecom Ltd. and China Unicom
Ltd. They have 180 million and 275 million mobile accounts, respectively.
Almost anywhere else, that would make them the biggest national carrier. But
together they are barely half of China Mobile's total.
Customers responding to a survey by
Bernstein Research cited China Mobile as their favored carrier. But they said
that, due to its lack of iPhone support, they use the smaller companies for
Customers who already own iPhones
might switch to China Mobile for data as well as voice service, Bernstein said.
That would mean a surge in business for China Mobile but little payoff for
"We could see an initial surge in
iPhones following availability at China Mobile, but weaker sales going
forward," Bernstein said in a report.
Apple could use the boost. Two years
ago, eager buyers in Beijing waited overnight in freezing weather for the
iPhone 4S. But that excitement had dissipated by this year's September release
of the latest update, the 5S. Customers who bought earlier iPhones said it
offered too few improvements.
That is especially problematic because
China is a key part of Apple's growth plans. CEO Tim Cook told the official
Xinhua News Agency in January he expects China will surpass the United States
as its biggest market.
Other manufacturers are making inroads
into China's smartphone market, squeezing Apple's leverage with carriers.
South Korea's Samsung sells one of
every five smartphones in China, followed by Lenovo Group, according to
research firm Canalys. Apple's sales are growing but it was in fifth place in
the latest quarter, with a 6 percent market share.
For the mass market in a country with
an average annual income of about $4,000 per person, less than one-tenth the
U.S. level, newcomers such as China's Xiaomi offer smartphones that run Google
Inc.'s Android system for as little as 799 yuan ($125).
A key obstacle to an Apple-China
Mobile deal is likely to have been how to share the benefits.
Carriers usually subsidize sales of
iPhone handsets, hoping to make back their money by attracting more users.
China Unicom and China Telecom took that deal to gain an advantage in their
uphill fight with dominant China Mobile.
China Mobile, by contrast, has such a
huge customer base that the added iPhone business would be much smaller in
percentage terms. That might have made it less willing to trade profit for more
In any deal, China Mobile's giant size
would give it leverage. It could demand a bigger share of profits or press
Apple to bear the cost of a customized iPhone for its China-only 4G standard.
The baseline would be whether China
Mobile matches Unicom's terms, Zhang said.
Unicom pays 2,500 yuan ($410) of the
iPhone's 5,499 yuan ($900) cost in exchange for a customer signing a two-year
contract to pay a minimum of 186 yuan ($30) per month.
If China Mobile matches that, "it
will drive sales dramatically," said Zhang. "If not, then it doesn't
One quirky asset in China Mobile's
favor: Classic phone numbers.
In China, mobile numbers with the
prefix "139" were the first issued in the 1990s. Today, they suggest
the user is well-established enough to have been a customer back when a mobile
handset cost several months of a laborer's wages.
Mobile numbers are assigned in blocks
to carriers. Only China Mobile, the first carrier, has the "139"
A dealer who trades "139"
numbers via a website and would give only his surname, Wang, said he is selling
one to two a week for up to 10,000 yuan ($1,500) each. He said they carry such
a powerful cachet that people are believed to answer calls from them more
"People buying those numbers are
office workers or businessmen," Wang said in a phone interview. "They
take 139 numbers as a symbol of social status."
Buyers who want both an iPhone and a
classic number would have only one place to go: China Mobile.