Preamble: The following is a SWAG and I will no doubt be wrong about plenty … yet I believe there is some basis for the following negotiation scenario and my speculation over forthcoming changes in China’s telecom industry. FWIW …
Apple negotiating team to China Mobile team:
“We’re coming out with a 3G iPhone and the chipset will support important world standard 3G protocols including TD-SCDMA including W-CDMA. And oh by the way, this new iPhone will be seriously “hack proof” (okay, much tougher to hack).
China Unicom tells us their CMDA mobile division is being acquired by China Telecom (TBA post Olympics). China Uniom will then merge with China Netcom and the combined company will be granted a 3G license and rights to build out the (proven) W-CMDA 3G network. They want an iPhone exclusive and they’re making a compelling pitch to us:
1) They say W-CDMA 3G is going to eat TD-SCDMA for lunch and they’re going to steal away millions of your most coveted subscribers … those on contract with a data-plan.
2) Unicom/Netcom wants to jumpstart their new TBA 3G mobile business by offering subscribers the most sought-after smart-phone for Net-surfing fun, “wow” audio/visual and intuitive UI – the iPhone.
3) Unicom/Netcom has heard the rumors about 400,000 unlocked iPhones on your (China Mobile’s) network. If we (Apple) sign an exclusive with them, they plan to offer iPhone subscribers very competitive rates and an unlimited data-plan option. Say good-bye to 9 out of 10 of your iPhone customers.
We know that you’ve (China Mobile) been growing subscribers at a clip of 5 to 8 million per month. Congratulations! We also know that despite this growth, your average revenue per user (ARPU) has not hit your targets. We understand that a key strategy for China Mobile is to grow your value added services (e.g. Monternet platform and other mobile data services). And finally, we know how critical mobile TV and delivery of video is to your future growth plans.
There is no phone that offers audio/visual and boosts data use like the iPhone! … Ask Google or any carrier who has officially launched iPhone. But then again, we know you’ve already asked … Net surfing increases 50 times and overall data-usage doubles or triples!
The iPhone is not a prisoner to fixed buttons. It runs OSX and software upgrades allow iPhone to evolve. It will only get cooler. You don’t need to spend a dime (.7179 Yuan Renminbi) or lift a finger … we’re going to cover all costs and handle delivery of these upgrades … quick and simple via iTunes. We want to do the right thing and make these upgrades free to all iPhone owners. Software updates will improve user experience and encourage maximum data use. We are offering significant value here and this does not come without cost to Apple. All we are asking is a small share of your monthly data-plan revenues to compensate for this value and expense. A happy iPhone owner is a retained “on contract” customer!
There is one more important value-add that comes with iPhone … our amazing developer community! Wait till you see the SDK unveiling. Our software development kit (SDK) will bring a whole slew of new apps to iPhone. All Apple and developer community apps will be delivered via iTunes. Again, no cost to China Mobile. Showtime in a just few days! 谢谢开发商! “
End of pitch …
Now if competitive dynamics take too long to evolve in China (i.e. 3G licenses or restructuring of telecom industry are delayed into 2009), China Mobile might not feel compelled to capitulate (agree to any terms Apple may desire) … Not a problem for Apple. They can offer a fully sanctioned “unlocked” iPhone without an exclusive carrier deal. This distribution could easily be done via deals with D-Phone, Shenzhen Aisidi, Apple.com (China) online and via new Apple stores in China. It will be a premium-priced iPhone, but not above the price that black-market buyers are currently paying.
Carriers offering both a locked and unlocked option: I have received some justified critique for implying (via this post) that iPhone can be made hack proof. I will concede that for every lock there is a locksmith and while a next gen iPhone can be made more hack resistant, it will not be hack proof.
Don’t be surprised if we see a two-tiered offering for next-gen iPhone (ala Orange in France where law prohibits handsets from being locked to a network for more than 6 months) – a locked iPhone in each nation and an “official” unlocked iPhone at a modest premium price. If the premium is too high, black-marketers will engage in arbitrage (unauthorized unlocking options at a lower cost). If the premium is modest, or “just right,” buyers will opt for the “official” easily upgradable iPhone that will come with a warranty and w/o the need to hack or jail-break.
Again, the preceding “negotiation scenario” was guesswork and I am no doubt wrong about many aspects of the on-going (or not) iPhone in China talks.