Here below is the latest from China Mobile as reported by Reuters. Note: iPhone in Asia editorial comment is interspersed – distinguished by blue italic font
China Mobile says keen on iPhone, but not in talks
Reporting by Kirby Chien; Editing by Edmund Klamann – [editorial comments by iPhone in Asia Editor – blue, italic font]
Mon Mar 3, 2008 10:47am GMT
BEIJING (Reuters) – China Mobile, the world’s largest mobile phone operator, said on Monday it had not officially entered into talks with Apple Inc to bring iPhones to the mainland, but was interested in doing so.
[key words above are “not officially” … China Mobile will only use the word “formal” or “official” when a deal with Apple is done.]
In January, China Mobile said talks with Apple on launching the U.S. company’s popular iPhones had been called off, although Apple has never commented officially on the issue.
[In January there were never any substantial or ongoing talks. Accoring to Steve Jobs, there was just one informal meeting with a China Mobile executive in Cupertino … The “talks off” ploy was suspiciously timed for day-one of MacWorld 2008 when the world tech/business media would be focusing on Apple. See – Press gets Spun by China Mobile ]
“We have not yet officially begun talks with Apple over the iPhone problem,” China Mobile Chief Executive Wang Jianzhou told reporters on the sidelines of an annual parliament advisory body meeting.
[There’s that word “officially” again] …. [“iPhone Problem?” Problem how? Problem as in so-called black-market problem for Apple? Or problem as in we’d better sign Apple before the China telecommunications industry restructuring is announced?]
“As long as our customers want this kind of product, we will keep all options open,” said Wang.
[“As long as our customers want this product” …Translation = If we don’t sign Apple, we stand to lose some of our most valued customers when China Unicom acquires China Netcom and is then granted a W-CDMA 3G license]
Investors had cheered Apple possibly winning access to China Mobile’s 350 million subscribers — more than the population of the United States — when news of talks helped Apple’s stock climb more than 10 percent on November 13.
[Pacific Rim carriers deals will most likely be announced in late Spring or early Summer. ]
The iPhone, a hot-selling cell phone that allows Internet access and plays music, sells for about $500 in the United States — roughly double the average monthly salary in China.
[The iPhone is “too expensive” argument ignores tangible evidence to the contrary. While the average salary is quite low compared to Western standards (see – China Mobile and Apple – The 2008 iPhone Games), there is a fast rising middle-class in China and they do not want a knock-off iClone or lesser “iPhone killer.” InStat estimates that 20% of handsets sold in China in 2007 cost more than 4,000 RMB (US$533). In another words, there are an estimated 28 million (and growing) potential users for the iPhone in China… and growing.
What is most interesting is an October 2007 report on luxury goods consumption in China. The numbers tell a compelling story. China currently has:
- An estimated 300,000 millionaires and rising.
- A middle class of 250 million (making an equivalent salary of $550 to $1,000 US dollars per month) and rising.
- A total population of 1.3 billion, that according to Ernst & Young, spent $6 billion US on luxury goods last year (2006).
- And a prediction by investment bank Goldman Sachs that the percentage of China’s populace that purchase luxury goods will rise from 12 percent to 29 percent by 2015. This will place China second only to Japan in global consumption of luxury goods – worth an estimated $80 billion US a year.]
iPhone would first have to resolve technical, content and fee issues unique to China, including Apple’s revenue-sharing agreement that China Mobile would find hard to accept, analysts said.
Apart from China, Apple had also initiated talks with NTT DoCoMo Inc and Softbank Corp to bring its multimedia device to Japan, although sources at both Japanese firms said revenue sharing was again a hotly contested issue.
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iPhone in Asia Editorial Comment: The impending restructuring in the China telecom industry is a prime reason why Apple has not rushed to immediately conclude iPhone negotiations with China Mobile. Apple is very carefully considering how the landscape will be changing in 2008/09 and how this might impact their carrier partnership and iPhone distribution options in China. Post restructuring, there should be legitimate competition for wireless customers. A newly formed China Unicom, with a 3G license and rights to build out the W-CDMA network, can go toe-to-toe with China Mobile and their nascent (unproven) TD-SCDMA 3G network.
The China telecommunications industry restructuring is being done with the direct involvement of the China Ministry of Information & Industry. It has already been decided who is going to run each new business group. Look for announcements following the 2008 Summer Olympic Games in Beijing.
While much has been decided, there will be a few internal restructuring skirmishes. China Mobile will battle the combined Unicom/Netcom 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 is apparently (if my intel is correct), supporting China Unicom’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!
Why Apple has a fair chance to win a favorable deal with China Mobile or China carrier or distributor/partner to be named later:
· 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 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 far more difficult (expensive) to hack.
· To further combat hacking, Apple can work out (with China Unicom’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).
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/Netcom) in wireless. Given the dynamics in China’s telecom industry and important growth strategies (mobile video watching, on contract data-plan customers) it’s a fair bet that Apple can win a favorable deal in China.
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