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Posts Tagged ‘MIIT’

Upfront cash and cashflow from Apple’s rumored iPhone in China deal

Washington Post’s Tameka Kee reports that Apple’s rumored 5 million iPhone sale to China Unicom will generate about $100 per unit in profit for Apple. Kee states that this is less than the estimated $400+ per unit that Apple now gets on its deal with AT&T. My reaction … “Um, yeah … no kidding” … We’re not on a level playing field in China. We need to get a toehold in China, with some 700 million wireless consumers, and then go from there. Besides this deal is far more profitable than the initial margin calculations suggest.

picture-342Let’s do a quick breakdown … iSuppli has a BOM estimate of $178.96 for the iPhone 3GS. The report from CBN states that Apple’s iPhone deal with China Unicom is for 5,000,000 iPhones purchased upfront for $1.46 billion. That’s $292 per unit less the $178.96 = $113. But there are other variables to consider. Apple will almost certainly NOT be providing China Unicom with the standard iPhone 3GS model. The special model for China will likely be the new model A1324 and it will likely cost less to build and distribute. If numerous reports are to be believed, this model will not include WiFi (a $5 to $10 savings per unit). Moreover, it is likely that China Unicom will cover virtually all shipping, marketing and distribution expenses associated with a China iPhone launch. So you can knock off another $18 to $25 per unit in expenses that Apple would normally incur.

Whether Apple will receive ongoing App Store and iTunes revenues under this China deal is a large question mark? Pure conjecture on my part, but I would not be surprised to learn that Apple has assisted China Unicom with the development of a China Unicom branded version of Apple’s App Store and iTunes. A bit more background and flat out guesswork

Li Yizhong - MIIT VM

Li Yizhong - MIIT VM

Apple’s China iPhone negotiations have ostensibly been with potential carrier partners (first China Mobile and later China Unicom), but the watchful parent has always been in the background whispering instructions into the child’s ear. It is my view that China’s Ministry of Industry and Information Technology (MIIT) has had the final say on the iPhone deal terms. And it’s apparent that China’s MIIT has no intention of allowing Apple, or any handset manufacturer for that matter, to capture substantial wireless value added services (WVAS) revenues that China feels belong to its indigenous carriers. Consequently, to get any iPhone deal done in China, Apple may have been required to give up a large portion of revenues from the Apple iPhone platform (iTunes and App Store). picture-2That does not mean “no apps” or music for China iPhone owners. It just means a different platform, one with China Unicom’s brand. This will likely be a cloned version of Apple’s platform designed by Apple for China Unicom. I believe that Apple will be (shhhh … quietly) “cut in” for a certain percentage of WVAS revenues despite all of the posturing in the China tech press that “Apple will forego its revenue sharing model.” Since saving face is very important in China, I expect that Apple will not publicly disclose any assistance they may provide to China Unicom in developing their special iPhone WVAS platform, and nor will they publicly identify (break out) revenues from this WVAS partnership.

As with most Apple ventures, the iPhone deal in China will prove to be handsomely profitable and cash will continue to accrue to Apple’s bottom line … starting with a cool $1.46 billion up front!

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2046528Apple’s iPhone managed to land in Hong Kong last year, but the drive across the Kowloon Toll Road to China is taking a bit longer. Antsy youngsters (media, investors and analysts) in the back seat want to know one thing… “Are we there yet Uncle Tim (Cook)?” …

Apple COO Tim Cook: “Um, not quite yet. The view is a bit hazy, but that sorta looks like Beijing. (Pointing East) See over there … It’s just over the horizon.”

Picture 2Okay, I took some poetic license. Tim Cook chooses his words carefully. During Apple’s (AAPL) recent Q3’09 earnings call, Broadpoint.Amtech analyst Brian Marshall asked: “Tim, any update on the iPhone in China?”

Cook’s response: “Nothing to add to date specifically, other than it continues to be a priority project and we hope to be there within a year.” (i.e. it could be tomorrow … or it could be 12 months from now)

Okay… Before a tantrum breaks out in the back-seat, let’s get back to the kids’ most urgent question… When?

Picture 1Just my super wild-ass guess, but I’m now looking for a deal announcement sometime in late Summer ’09 and an iPhone launch in the Fall of ‘09. What’s the basis for this SWAG?  Mostly a game of clue by the bumbling Inspector Clouseau (that would be Moi’ who previously predicted we’d be launched by now):

apple_unicomClue 1: Multiple different reports and sources lead me to believe that Apple’s negotiations with China Unicom were successfully concluded in late Spring 2009. You can chalk up the delay in a formal deal announcement to logistics (e.g. testing, licensing process, WCDMA network rollout and new model iPhone build) and perhaps some China telecom industry politics.

Clue 2: Press reports along with some documentary evidence, suggests that a new model iPhone was submitted to China’s authorities for mandatory “testing” sometime in late Spring. The MIIT’s testing process can take several months to complete. Foot-dragging by the MIIT might help China’s carriers to deploy their own Android-based phones + new WVAS + new mobile operating systems before iPhone is launched.

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crystal-liu-pic-0014Clue 3: Multiple reports that Foxconn (Hon Hai Precision) will soon begin full production of a custom iPhone for China. This model will not have WiFi (due to WAPI/WiFi issues) but will likely come preloaded with several “for China” apps. Foxconn has given this iPhone a code name – “Model 90.” There is a very high probability that Model 90 is the same “yet to be unveiled” iPhone model (A1324) that China granted (in early June) a Radio Transmission Equipment Type Approval Certificate (RTETAC). This new iPhone is still pending the mission-critical Network Access License (NAL).

Clue 4: Initial production of Model 90 was confirmed in a tragic and highly unusual fashion – the July 16 suicide of a Foxconn worker charged with the responsibility of shipping 16 “Model 90” prototypes to Apple. One of the “Model 90” prototypes went missing (circa July 10) and this led to a very unfortunate chain of events that ended quite tragically. Many other bloggers and journalists have weighed in on this story, so I won’t delve into it any further here.

3609103536_3e314978d8Clue 5: Another reason why an iPhone launch might need to be pushed to Fall of ’09 is “manufacturing constraints.” That’s analyst speak for they can’t build ‘em fast enough to meet robust demand. Apple’s manufacturing partner, Foxconn (Hon Hai Precision) is now committing substantial resources to build iPhone 3GS, and this may take priority over production lines for the new model for China.

Clue 6: While China Unicom’s WCDMA 3G network was successfully launched on May 17, it will take several months before service is fully deployed. China Unicom rolled out the first 55 cities on May 17. On June 30, China Unicom announced the rollout to an additional 44 cities. All major cities should be lit-up by September/October with blanket WCDMA 3G coverage by year-end (284 cities).

Clue 7: China Mobile and China Unicom will launch their first proprietary Android-based phones (OPhones/UPhones respectively) + their new mobile OS and enhanced wireless value-added services (WVAS) circa August/September ‘09. China’s carriers may want to have their own “answer to iPhone” ready by the time the MIIT grants iPhone its NAL. In case you’re wondering … yes, China Unicom will be in “coop-it-ition” (cooperation + competition) with Apple. They want iPhone to “go huge” to bring in new subscribers, but they also desire new product/service offerings of their own.

To sum up… logistics and politics may push the iPhone deal announcement out to late Summer with a launch in China coming sometime in the Fall. But it will happen this year! So says Inspector Clouseau.

jingjing10“Are we there yet?” …

“Almost … watch another Olympics video on your iPhone and before you know it we’ll be there.”

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Here (below) is my comment to a recent AppleInsider post comment

iPhone Model A1324

Quote:
Originally Posted by Leia View Post
long long ago, there was a post about China Unicom will be iphone’s carrier in China. it said that the model number of China Unicom iPhone is A1324 (A represents Apple), which can support GSM/GPRS/EDGE/WCMDA in China. iPhone A1324 is specially designed for Chinese people with the original iPhone 3G prototype. the news comes from this link: http://www.iphonemofo.net/?p=703

iphonechinaiPhonAsia comment: The iPhone model number “A1324” was assigned by China’s NRSMIC as part of China’s handset licensure process. This model was likely submitted for testing in early March ’09. NOTE: Apple may have submitted more than one model.

As part of the approval process, China’s Ministry of Industry and Information Technology (MIIT) requires that all handsets be tested by China’s Telecommunication Technology Labs (CTTL). Tests can take several months. In response to media inquiries, CTTL clarified that Apple’s iPhone (A1324) has received only one (1) of the two (2) required MIIT licenses:

  • Issued (five-year model approval) – Radio Transmission Equipment Type Approval Certificate (RTETAC)
  • Pending – Network Access License (NAL)

More background > http://iphonasia.com/?p=5586

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FWIW … here are my replies to posts on my favorite Apple (AAPL) stock message board – AAPL Sanity

Re: China and the GFW

<< So essentially they’ve likely been negotiating for a model of iPhone with enhanced parental governmental controls. >>

Actually, yes … all “officially approved” WiFi-enabled phones in China must also include China’s home grown WLAN authentication and privacy infrastructure otherwise known as “WAPI

wifi-music-store-headerChina only recently approved the use of WiFi on handsets as long as these phones include WAPI encryption … WAPI (wireless authentication and privacy infrastructure) is still not an ISO/IEC approved standard. The ISO/IEC has previously been rejected WAPI. One reason for rejection was concern over a theorized WAPI “backdoor” that would allow government to monitor users:

This “backdoor” may or may not be true:

“One of the problems with China’s attempt to get WAPI wider acceptance is that they refuse to provide the full specification or its encryption algorithm. I can’t think of a standards body willing to adopt a standard they can’t see.”

“with WAPI’s algorithm still hidden in the shadows, one has to wonder who WAPI’s adoption would make more secure: consumers or the Chinese government?”

… and remains a raging debate amongst “techies” who know more than I … but it’s one reason why there is no clarity as to whether the TBA “official” iPhone in China will come with WiFi … If it does include WiFi … then it is virtually certain that it will be dual WiFi/WAPI … otherwise iPhone would not be approved by MIIT.

The buzz from China is that MIIT is testing an iPhone with WiFi disabled … if true, then Apple has made the decision to forego inclusion of WAPI.  NOTE: These restrictions will apply to ALL smartphone manufacturers who offer WiFi enabled phones in China – Apple, RIM, Palm, Nokia, HTC, et. al.  They will either include WAPI or they MUST disable WiFi.

Background article:  China to Propose WLAN Security Standard for Global Use Again by Owen Fletcher, IDG News Service Tuesday, June 16, 2009 4:00 AM PDT

Re: Hey idannyb… any new china news for Apple? <eom>

All quiet from sites and sources I monitor … My SWAG is that a deal announcement will happen sometime in July with a launch later in the summer. But this is more a gut feel than based on any solid intel. In any case, a deal announcement won’t happen until formal MIIT issuance of iPhone’s network access license (NAL) … which could happen at any time.

I suspect Apple will defer the iPhone in China launch date until the 55 major cities in China are showing good coverage via WCDMA 3G … and that’s progressing.

A few items that might have some relevance …

  • The iPhone 3GS will go sale officially in Hong Kong July 19 (just a rumor – no confirmation). But Apple has already stated it would be avail in HK in “July,” so this is no huge revelation.
  • China Unicom’s WCDMA 3G network build out continues at a brisk pace.
  • Apple/China Unicom official deal announcement could happen in concert with iPhone’s NAL issuance by China’s MIIT.

Word is that MIIT’s iPhone tests have been underway for several months now. So approval (NAL) could theoretically happen at any time. The wildcard is whether Apple is has provided the MIIT a WiFi/WAPI enabled model for tests … or just a model with WiFi disabled (as rumored). China’s authorization of WiFi/WAPI combo was only made public a few weeks ago. Should Apple elect to go this route (go with WiFi/WAPI) it might add time to testing/approval process. I have no reason to believe that Apple will go with WiFi/WAPI. Smart money says that Apple will disable WiFi on the official iPhone in China.

I’ve chatted via Twitter with several beta testers of China Unicom’s WCDMA 3G. They are primarily in Shanghai and Beijing. Since updating to iPhone 3.0 OS on their “unofficial” iPhone 3G (not S), they are reporting improved WCDMA coverage. Major cities in China (55 cities) are now up and running on WCDMA. But there are many secondary cities in China that are still in the early stages of installing WCDMA base stations. … new base stations are going up every day.

When the WCDMA 3G network is completed, I expect the coverage in China to be very good. Much better than in the U.S. Thanks to China’s economic stimulus package, the spend on 3G in China dwarfs what U.S. carriers have spent to set up their own networks. China Unicom’s WCDMA 3G network plans to cover China’s 284 cities with 78,600 base stations. That’s more 3G base stations than all carriers in Western Europe have rolled out in 9 years since 3G wireless standard has been in existence.

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Update – June 12, 2009: Interfax TMT reporter Cindy Geng (who has good China telecom sources) reports the following – Beijing. June 11. INTERFAX-CHINA

“A version of Apple’s iPhone lacking Wi-Fi capability has made progress towards obtaining a Network Access License (NAL) from the Ministry of Industry and Information Technology (MIIT), although a trademark dispute could set back its launch, sources told Interfax on June 11.

wifi-music-store-headerA China Unicom marketing employee, who asked not to be identified, said that the Wi-Fi-disabled iPhone had passed the tests of the State Radio Monitoring Center and obtained a five-year valid Radio Transmission Equipment Type Approval Certificate (RTETAC), which is one of the requirements for getting MIIT’s NAL. The model submitted for testing was compatible with GSM, WCDMA and Bluetooth, although it lacked Wi-Fi, according to the source.

Interfax previously reported that Apple prepared both Wi-Fi and non-Wi-Fi iPhones for the tests, as under Chinese regulations, Wi-Fi phones can only be granted NALs if they are also capable of the Chinese-developed wireless technology, WAPI (WLAN Authentication and Privacy Infrastructure).

The China Unicom marketing employee said that the iPhone still has a number of tests to pass before it can receive an NAL, including electromagnetic interference, trial operation, China Compulsory Certification tests, local support and after-sales support system evaluations and many others.”

Read more via > Cindy Geng’s report on Interfax TMT

Update – June 11, 2009: For several months now, iPhonAsia has read purported “insider leaks” about iPhone network testing in major Chinese provinces (Unicom testing iPhone in Henan and Heibei?). From what we heard, iPhone 3G was passing these unofficial WCDMA 3G network tests (conducted by Apple and China Unicom engineers in prep for formal MIIT tests) with flying colors. Moreover, there are now current iPhone 3G owners in China who have begun using China Unicom’s new WCDMA network with no reported problems.

Despite these unofficial reports, we’ve now hearing from MIIT’s China Telecommunication Technology Labs (CTTL). In response to media inquiries, CTTL clarified that Apple’s iPhone has received only one (1) of the two (2) required MIIT licenses:

  • Issued (five-year model approval) – Radio Transmission Equipment Type Approval Certificate (RTETAC)
  • Pending – Network Access License (NAL)

So what gives?  There could be many reasons for MIIT holding up iPhone’s Network Access License (NAL), such as Apple submitting a special new iPhone model for China with WAPI encryption? It could also be that “parties” have requested that MIIT not reveal the iPhone NAL until the formal Apple/Unicom deal has been announced?  Or something under the “other” category? It’s all just guesswork for now. We’ll update this post when we learn more.

MIIT approves iPhone for sale in China??

June 11, 2008 – If my source is correct, China’s Ministry of Industry and Information Technology (MIIT) has quietly approved the iPhone 3GS (or special China version). MIIT approval is a key prerequisite to iPhone’s official launch in China. I should stress that this is unofficial news

“iPhone has already passed various tests, and approved to be sold in China on May 7th 2009. Approval number 2009-1996, device code 2009CJ1996.”

iphoneChinaSource: Beijing-based telecom source anonymous by request. More via June 10 QQ report (in Mandarin – use Google translate) > here

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wifi-music-store-headerMarbridge Consulting is carrying a story today about China’s Ministry of Industry and Information Technology (MIIT) approval of a WiFi capable 3G phone by Motorola. This appears to be the first WiFi 3G handset approved by the MIIT. The previous MIIT policy was to not allow WiFi on 3G mobile phones. The approval came about because of Motorola’s inclusion WAPI encryption. WAPI is China’s homegrown standard, an alternative to 802.11 (called WiFi). This appears to be the first mobile handset to integrate both WiFi and WAPI protocols. Read more about China’s morphing WiFi/WAPI polices > HERE

6a00e55225079e883400e553db8faf8834-800wiWill Apple follow Motorola’s approach and include both WiFi and WAPI in a new iPhone for China? iPhonAsia believes that this is a distinct possibility. We should have the answer in a matter of weeks. 

Picture 1EXCERPT: Motorola China’s vice president of sales, Wen Tao, confirmed the company will release a Wi-Fi capable WCDMA handset in China by the end of this month or early next month at the latest. Currently, no Wi-Fi enabled handset has received a mobile network access permit from the Ministry of Industry and Information Technology (MIIT). Wen said the handset, called the A3100, received permission because it supports both Wi-Fi and WAPI wireless networking standards. Read full post > HERE

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WO

WO

China Unicom’s “WO” 3G

Apple’s presumed iPhone carrier partner in China, China Unicom, unveiled its new 3G brand on Tuesday, April 28, 2009. China Unicom’s WCDMA 3G network and services will be marketed under the “WO” brand. The initial WCDMA network trial launch is scheduled on May 17 in 55 major cities across China. The full 3G network rollout is scheduled to be completed by year-end with 283 cities up and running under WCDMA coverage.

China Unicom’s unveiling of WO > WATCH VIDEO

250px-bestbuysh-7117251Five Star Appliance (Best Buy China)

As iPhonAsia reported on April 13, Apple has also reached an agreement with Best Buy owned Five Star Appliance to distribute Apple products throughout China. Apple will set up “stores-within-a-store” ala the Apple mini stores in US Best Buys. iPhone will presumably sell in the Five Star Appliance stores after it is officially launched. Read details on Apple and Five Star Appliance > HERE 

dsc09028There were rumors earlier this year that Foxconn Group’s (Hon Hai Precision is a Foxconn subsidiary) Cybermart would distribute Apple products in China. The Cybermart deal has been “officially denied” by Apple and Foxconn. Stay tuned, as it’s possible that we may hear about additional Apple distribution partnerships in China.

May 17 Announcements – Mid Summer Luanch

iphone-china-unicom-112iPhonAsia believes the China Unicom iPhone deal announcement could be made on May 17 (World Telecom Day) or on June 9 (Apple’s WWDC Keynote). The formal iPhone launch will most likely happen sometime in mid to late summer, but not before July 1.

iPhonAsia believes that the iPhone for China will be a special production run and may come preloaded with several “for China” apps such as mobile search through Baidu.com and an app to support either Tudou or Youku (China YouTube alternatives). We may hear more about these special partnerships with Apple on May 17 or June 9. Read more > HERE

Lou Qinjian - MIIT VM

Lou Qinjian - MIIT VM

MIIT Approval of iPhone and WAPI or WiFi

It should be noted that Ministry of Industry and Information Technology (MIIT) approval of iPhone is a necessary precondition to an official iPhone launch. Last month, MIIT Vice-minister Lou Qinjian confirmed that China Unicom was “engaged in clandestine iPhone in China negotiations with Apple.” He would not disclose any details regarding the negotiations, however he did reveal that:

“The labor letter department is organizing the operator to relate the terminal [mobile handset] manufacturer positively, after the 3G service launches comprehensively [circa May/June ‘09], provides the critical mass to the society 3G terminal product.”   

wifi-music-store-header1The MIIT also recently authorized 3G mobile handsets to include WAPI, China’s homegrown version of WiFi. iPhonAsia is still holding out hope for approval of international WiFi standards (802.11) on 3G mobile phones in China. More on WAPI vs. WiFi > HERE

 

 

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