iPhone in Asia reply to Blog post – The China Game part 1
You said …
“Apple’s business model has no chance of succeeding in China. Most people in China do not lock themselves into any phone plans and those that can afford the upscale phones change them like underwear. Whatever the latest fad is, they will buy.”
“No chance” Joe? I give Apple at least “a chance.” Here’s why … The rich (China Mobile) want to get richer, and they certainly don’t want to lose ground to competitors.
Soon after the Olympics there will be a series of announcements detailing the restructuring of the China telecom industry (this is finally happening). One key move will be China Telecom’s acquisition of China Unicom’s wireless CDMA division. There may also be an announcement about a newly combined Unicom/Netcom being granted the rights to build out the W-CDMA 3G network. China Mobile will battle for the W-CDMA rights (China Mobile has been saddled with responsibility to make the TD-SCDMA work and they’re anxious to hedge their 3G bet given technical and logistical problems with TD-SCDMA); however, the Ministry of Information & Industry (MII) is, if my intel is correct, supporting Unicom/Netcom’s bid for the W-CDMA rights. What does this mean? Real, actual, legitimate, serious competition in wireless! Apple is aware of these developments and this is why (IMO) there has been no rush to conclude a deal with China Mobile. Competition means the game is about to change!
image courtesy BDA – http://www.bdaconnect.com:80/
Here’s why Apple has “a chance”:
· 287 million of China Mobile’s 356 million subscribers are monthly “pay as you go” vs “on contract with a data-plan.” It should come as no surprise that China Mobile very much wants to grow its “on contract with data-plan” customers … they are far more profitable/important to China Mobile’s future. NOTE: China Mobile has been growing subscribers at a clip of 5 to 7 million per month and the uptake in data services has been impressive (now 25% of China Mobile’s wireless revenue). While these numbers are positives for China Mobile, TD-SCDMA must be able to deliver wide coverage and high speed, or China Mobile stands to lose data-consuming customers to a carrier with the more scalable and reliable W-CDMA.
· The future growth in wireless revenues will come from value added services such as music, messaging, mobile video and mobile TV (CCTV on your phone). To grab this business, you need a reliable 3G (LTE 4G in the future) network, and subscribers who own handsets with excellent audio/visual capability.
· There is no phone that offers audio/visual and boosts data use like the iPhone! Period end of story. Net surfing increases 50 times and overall data-usage doubles or triples!
· A combined Unicom/Netcom w 3G license + W-CMDA with an iPhone exclusive, can steal a large slice of China Mobile’s customers (no jail-breaking or hack necessary).
· The new 3G iPhone will be more difficult (expensive) to hack.
– To further combat hacking, Apple can work out (with TBA China carrier’s blessing) a two-tier offering … Specifically, a locked iPhone with a 2-year contract (and presumably some rev share) and a premium-priced unlocked iPhone in the same market. This would follow the iPhone in France via Orange model (French law prohibits handsets from being locked to a network for more than 6 months). Such a move by Apple would preserve revenue sharing model (albeit slight less rev), as 70 to 80% would go with the locked phone, and at the same time deliver a death-blow to the black-market for hacked and jail-broken iPhones.
· Unicom/Netcom would likely offer an attractive “amnesty plan” for China Mobile’s existing iPhone “pay as you go” owners. They will be enticed to go on contract with Unicom with many TBA incentives and knowledge that they can upgrade their iPhones for free … no need to pay a black-market hack-a-phone shop for future Apple or developer upgrades.
· The soon to be unveiled iPhone SDK will come with many cool apps. All Apple and developer community apps will be delivered via iTunes (Apple apps will be free … no cost to iPhone owner, no cost to carrier, no black-market hack necessary).
Again … The rich want to get richer and they (China Mobile) don’t want to lose ground to competitors. China Mobile will likely push MII to win rights to run a dual TD-SCDMA/W-CDMA network. Regardless of whether China Mobile wins that battle, there will be another serious 3G competitor (Unicom) in wireless. Given the dynamics in China’s telecom industry and important growth strategies (mobile video watching, on contract data-plan customers) … I give Apple a chance.
Key Players in iPhone to China Negotiations
image courtesy BDA –