Posts Tagged ‘Negotiations’

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BusinessWeek reports tonight (January 18, 2008) that Apple is looking for a new Chinese iPhone partner. According to BusinessWeek, China Unicom and aspiring mobile operator China Telecom, are the leading contenders after China Mobile halted talks with Apple. This this dubious story is based on an anonymous industry source. How much credibility do I give this report? Not much.  

For a much better albeit somewhat dated BusinessWeek article, see – China’s iPhone fans find a way




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Press gets Spun by China Mobile

“Someone’s just making this stuff up!”

~ Dan Butterfield, January 17, 2008

A quick Google search of news stories with key words “iPhone in China” will yield literally thousands of results.  A click on same topic stories in the last 24-hours will produce dozens of articles/posts proclaiming that “Talks with China are over!” …. “Apple loses China!” … “China Mobile Walks Away from iPhone Deal” … “Apple runs into a China Mobile Wall”

Geez!  Do a little detective work authors!  Peel back one more layer.  Ask one more question.  Check a second source.  It’s not that tough.  Lazy journalists wind up as pawns serving someone else’s agenda. This appears to be the case with so many of the recent iPhone “no go” in China stories.  I am going to pick-on one recent article to illustrate the point.  I have nothing against the author (I’m sure he is a fine fellow); however, this is a perfect example of the type of journalism that lends credence to the Steve Jobs’ theory… someone’s just making this stuff up.

I will post the full article below and include my comments in parentheses with [blue-colored font].

China Mobile picks Blackberry over iPhone

Apple out over revenue demands, RIM finally enters the region

~ Matt Chapman, vnunet.com 17 Jan 2008DVERTISEMENT

BlackBerry maker Research in Motion (RIM) appears to have cracked the Chinese market at the expense of the iPhone, following a breakdown in talks between China Mobile and Apple.

RIM has secured the backing of China Mobile, while the iPhone has been spurned in a row over revenue.

[The RIM deal with China Mobile is old news that keeps resurfacing as if it was “new.”  Kudos to RIM PR.  Like Groundhog Day this story keeps repeating itself and each time it hits the wires the press forgets they’ve heard it before and they go nuts.  “OMG, Blackberrys in China!”  The first reports of the RIM/China Mobile partnership came in July of 2007.  There have been multiple follow-up press releases, including last October when RIM reported its first shipments of BlackBerry phones for China. 

The author’s preamble implies that the RIM deal is “at the expense of the iPhone.”  Oh really?! J … I didn’t realize RIM had that much pull with Wang Jianzhou?  Let’s think rationally.  Given China Mobile’s desire to expand data/value-add services, I doubt the world’s largest carrier would slam the door on iPhone.  The Chinese call the black-market iPhone “Ai Feng” (translates to love craze). iPhone is Apple’s “best iPod ever,” runs OS X, has a Safari browser and actually makes net-surfing on a phone fun.  Why should China Mobile care?  iPhone owners use data … lots of data … far more than on any other handset. If China Mobile wants to remove “wonder and excitement” from mobile users’ experience, then Blackberry should do just fine.  But if China Mobile wants to put their Monternet data-services in hyperdrive, they’ll keep the door ajar for Apple.  

China iPhone love 

A few iPhone data usage factoids … “Google data shows that Apple iPhone owners have been accessing its mobile search tools at a dramatically higher rate than RIM or any other smart-phone.  According to The New York Times (IDC research) “the data usage is striking because the iPhone accounts for just 2 percent of smart-phones worldwide. That would seem to indicate that iPhone users access online services at a rate of 20x customers with other handsets.”]

This will come as a blow to Apple, as China Mobile’s 332 million customers offer the largest number of subscribers of any single mobile phone company.  A spokesman for China Mobile said that talks with Apple had been ” temporarily stopped” but did not confirm whether they would restart.

[Negotiations have “temporarily stopped” does not mean – “It’s over!”  And declining to say whether discussions will resume does not mean “don’t let the door hit you on the way out!”]

Other sources within the company said that problems arose because Apple wanted to control the value chain and had been asking for as much as 30 per cent of the revenues from iPhone sales.  “Of course we could not agree,” Gao Nianshu, general manager of the data department at China Mobile, revealed in a talk to students.

[The author somehow failed to find and report the other quote from Gao Nianshu (same day, same interview). The one where he states “contacts (with Apple) continue.”  The author also fails to report a key quote made during CNBC Jim Goldman’s video interview with Apple’s CEO

 (Jan. 15, 2008 – answering a question regarding China Mobile)

Steve Jobs: It’s very strange … we’ve met once with one of their representatives.  There have never been any ‘hot and heavy’ discussions either ‘on’ or ‘off’ … someone is just making this stuff up.”

This “on video” remark by Steve Jobs contradicts Gao Nianshu’s (China Mobile’s) conveniently packaged comment.] 

Reports in Chinese newspapers suggest that the BlackBerry will go on sale in the region before the end of the month.  This follows years of effort by RIM to launch into the only Asian market it has yet to tap. RIM hinted at a deal with the Chinese firm back in July 2007.  However, the BlackBerry debut does not guarantee success for RIM, as China Unicom‘s rival RedBerry handset sells for less in China.

Back-story:  This is not the first time that “talks have ended” statements have come from a China Mobile spokesperson only to hear later that “talks continue.” Yet it seems the China spin machine is not totally in synch.   According to a January 14, 2008 Bloomberg report, Sina.com has said the companies (Apple and China Mobile) will meet for another round of talks.  

Conspiracy?: In my opinion, Rainie Lei’s (China Mobile spokeswoman) January 14, 2008 statement was a bit too conveniently timed.  Ask yourself this basic question – Why has China Mobile seen fit to deliver this “talks ended” statement to the press again?  And why go public on the first day of the MacWorld Conference when the world’s media would be focusing on Apple?  Apple is not talking publicly about China negotiations and they have never made any  proclamation that a “deal is in the works” with China Mobile.  So (China Mobile) why go public?  And why now?  Could it be that China Mobile knows that a “talks ended” statement to the press will put pressure on Apple to rejoin or begin serious discussions?   Or are there other “behind the scenes” players who persuaded China Mobile to make statements to the press?  With the stakes so high, there are many motivations to stir up Apple FUD (Fear Uncertainty and Doubt) and MacWorld would be the perfect time.  Here come the black helicopters carrying FUDsters all the way from Grand Cayman Island, Rockefeller Plaza NYC, Ontario Canada and Espoo Finland.   

There is clearly more to the “China discussions” story than Steve Jobs was prepared to share on Tuesday. However, it boggles the mind how so many journalists, bloggers, and pundits can run with China Mobile PR spin with little or no fact-checking.  End result … the press gets spun and they got it wrong!

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CNBC’s Jim Goldman conducted a post MacWorld Keynote interview with Steve Jobs.  Goldman asked Jobs about the reported “end to talks” with China Mobile. Steve Jobs Exclusive – See Video Here 

For the complete iPhone in China back-story with updates see here – China Mobile and Apple – The 2008 iPhone Games 

CNBC’s Jim Goldman sits down with Apple CEO Steve Jobs.



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CNBC’s Jim Goldman just concluded a post MacWorld Keynote interview with Steve Jobs.  Goldman asked Jobs about the reported “end to talks” with China Mobile.   According to Goldman, Steve Jobs said there were no such ongoing negotiations.  He noted that there has been only one China Mobile representative that has visited Apple’s Cupertino HQ and that meeting took place months ago.  

My guess … There have been some preliminary chats but “negotiations” (serious back and forth over a contract) have yet to happen.  

AT&T made an iPhone deal with Apple without the benefit of dissecting the product.  They put their faith in Apple and were rewarded.  China Mobile may not take this approach.  China (Nation/State) and China Mobile have made their new 3G (TD-SCDMA) network a priority (albeit a full-scale TD-SCDMA launch will likely be deferred until 2009).  China Mobile will demand that the new iPhone support their new 3G network.  And China Mobile may want “hands on” testing time with the new 3G iPhone before they hold serious contract talks.  Apple almost certainly has the new 3G model under lock-in-key in Cupertino.  While the new model may be relatively refined, Apple may not be ready to let China Mobile engineers run network tests with their new “oh so gorgeous” baby … just yet.

There is clearly more to this story so stay tuned.   The Goldman video interview should be queued up later today and we’ll hear directly from Steve Jobs.


Update 1:

Paraphrasing Jim Goldman’s interview with Steve Jobs …

Regarding China Mobile

Steve Jobs:It’s very strange … we’ve met once with one of their representatives.  There have never been any ‘hot and heavy’ discussions either ‘on’ or ‘off’ … someone is just making this stuff up.”



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Call me an optimist (guilty) and Apple fanboy (yep) … but I don’t believe for a second that the last round of “talks ended” statements by China Mobile means the negotiations have actually ended.  In fact, they may have only just begun in earnest.  Like a lovers quarrel, sometimes the stinging words have to let fly before the serious communications can begin. 

iphone-china-talks.jpgChina Mobile:  “Revenue!  We don’t share no stinking subscribers revenues!”  

images-3.jpegApple:  “You want “on contract” customers who use massive amounts of data … Get back when you’re serious!”


So “talks have ended!”  … I think NOT!   The lovers are taking a time out … Deep down they want and need each other. 

Okay serious business … The team of Financial Times UK reporters based in China have done a better job than most at getting the story right.  Words matter!  Negotiations have “temporarily stopped” does not mean – “It’s over!”  And declining to say whether discussions will resume does not mean “don’t let the door hit you on the way out!” In fact Gao Nianshu, general manager of China Mobile’s Data Dept indicated that “contacts” (with Apple) continue.

See full details in the FT.com article – China Mobile suspends talks with Apple over iPhone launch By Robin Kwong and Justine Lau in Hong Kong and Mure,Dickie in Beijing – Published: January 15 2008 02:00 | Last updated: January 15 2008 02:00


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This report comes from a Bloomberg reporter (John Liu) stationed in Shanghai.  He quotes Rainie Lei a spokeswoman for China Mobile.  It should be noted that this is not the first time that “talks have ended” statements have come from a China Mobile spokesperson only to hear later that “talks continue.” Moreover, and most importantly, Sina.com has said the companies (Apple and China Mobile) will meet for another round of talks.  

In my opinion, this January 14 report is more than rumor, yet this does not necessarily mean that negotiations have definitively come to an end.  Ask yourself this basic question … Why has China Mobile seen fit to leak this to the press once again?  Apple is not making any public proclamations that a “deal is in the works” with China Mobile.  The probable answer is that Apple has now agreed (with China Mobile’s understanding) to move away from exclusive talks with China’s largest mobile provider, and engage in discussions with other potential distribution partners (China Unicom, et. al).  Yet China Mobile does not want to completely walk away from an iPhone deal.  China Mobile knows that a “talks ended” statement to the press will put pressure on Apple to rejoin discussions albeit on terms more favorable to China Mobile.  For a more detailed analysis of negotiations (including who said what and when), see – China Business – The 2008 iPhone Games 

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Here (below) is the January 14th Bloomberg Article – 

China Mobile Ends Talks With Apple to Sell IPhone (Update1)

By John Liu

Jan. 14 (Bloomberg) — China Mobile Ltd., the world’s biggest wireless-phone company by users, said it ended talks to sell Apple Inc.’s iPhone handset in China, declining to say why the discussions were discontinued.  ”We have stopped talking to Apple,” Rainie Lei, a Hong Kong-based spokeswoman for China Mobile, said today by telephone. Jill Tan, a Hong Kong-based spokeswoman for Apple, declined to comment. 

The negotiations ended because Apple wanted a larger share of revenue from game, music and video downloads than China Mobile would offer, the Sina.com Web site reported today. Apple shares rose the most in more than a year in November after China Mobile Chairman Wang Jianzhou said the Beijing-based carrier was in talks to sell the IPhone.

“It’s bad news for Apple,” said Johnny Yeah, an analyst at Quam Ltd. in Hong Kong, who rates China Mobile’s shares ‘buy.’ “China Mobile would have helped immediately sell lots of iPhones because they have such a large user base; Apple entering China without China Mobile won’t be as substantial.”  China Mobile, which already has an agreement to sell Research in Motion Ltd.’s Blackberry handsets in China, added 6.5 million subscribers in November for a total of 362.8 million.  China is the world’s biggest mobile-phone markety by users, with more subscribers than the populations of the U.S., Japan, and the U.K. combined. The country was home to 539.4 million wireless customers as of the end of November, according to government data.

Service Fees (i.e. Revenue Sharing)

The mobile carrier stopped talks because Apple wanted 20 percent to 30 percent of fees from providing data services to iPhone users, Sina.com said, citing Gao Nianshu, director of China Mobile’s data services. China Mobile charges users for downloading games, music and Web sites over its wireless network.  Talks between China Mobile and Cupertino, California-based Apple stopped because the carrier considered the U.S. company’s terms unfavorable, the YCWB.com, a U.S. Web site, reported on Nov. 30.  The companies will meet for another round of talks, today’s Sina.com report said, without providing details. China Mobile’s Lei said she was unaware of plans for further talks.  Sophia Tso, a Hong Kong-based spokeswoman for China Mobile’s smaller rival, China Unicom Ltd., declined to comment on whether the company had talked to Apple about selling the iPhone.  China Mobile’s shares fell 1.1 percent to HK$132.40 as of the 12:30 p.m. midday break in Hong Kong. Apple’s stock fell 3 percent to $5.33 in New York on Jan. 11.

To contact the reporter on this story: John Liu in Shanghai at jliu42@bloomberg.net

Last Updated: January 14, 2008 01:31 EST



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China Business – The 2008 iPhone Games  

Update 12 – June 28, 2008: iPhone 3G in China – Path cleared for a deal

Update 11: June 9, 2008: CNBC’s Jim Goldman sat down for a post WWDC 2008 Keynote interview with Steve Jobs … key subjects – 3G iPhone, lower price, SDK & new app store and “I think you’ll see those (China & Russia) happen later this year”

Discussion points: 3G launch, pricing and market-share + Steve Jobs’ mention of China & Russia + discussion of AAPL performance > HERE

Confirmed: 6 million iPhones sold since initial launch!

Steve Jobs June 9, 2008:

“The two big ones we just didn’t have a chance to get closed were Russia and China… and I think you’ll see those happen later this year… we have to get through the regulatory bodies in China, which we’re in the process of doing, and I think later on this year you’ll hear some announcements.  70 countries is a lot of countries and we’re launching 22 of the biggest on July 11th” 

Primary video interview HERE

Update 10: April 12, 2008: iPhone in China Update

Update 9: May 7, 2008 Two China carriers for iPhone?

Update 8: April 12, 2008: iPhone in China Update 

Update 7: February 16, 2008

Here’s the pitch Apple might make to China Mobile

Update 6: February 1, 2008

Rumor: China’s TD-SCDMA 3G may not be an eternal flame – See full article here – HERE

v    China Telecom may be acquiring Unicom’s GSM mobile unit + a 3G license + rights to build out  W-CDMA 3G network

v    China Nation/Sate may allow actual competition in mobile

v    W-CDMA may supplant TD-SCDMA in China and it could happen ‘sooner’

v    China Telecom and China Mobile may battle over rights to develop W-CDMA.

All of the above will have implications for Apple in the “iPhone in China” negotiations.  See full article here – HERE


Update 5: January 29, 2008

China Telecom is in discussions with vendors on ways/means to integrate its systems with China Unicom’s CDMA network. This lends further credence to the rumors that China Telecom will move to acquire China Unicom’s mobile business.  Lei Tang covers this story in her blog Asia – Europe Business. This rumored merger could impact Apple iPhone negotiations in that the second most viable partner in China for Apple (Unicom) may be sidetracked during their integration with China Telecom. While the merged companies might prove to be more capable of competing for new mobile customers, China Mobile will have control of the new TD-SCDMA network. Advantage goes to China Mobile … stay tuned.  More HERE 

Update 4: January 26, 2008

According to a report issued by Marbridge Consulting, TD-SCDMA numbers will be issued for a system test (February or March) in Olympic cities.

Rumor: China Mobile to Issue TD-SCDMA Numbers in February

An internal source has revealed that China Mobile will likely begin the small-scale, internal release of TD-SCDMA numbers by the end of February or early March.

China Mobile had recently brought technical staff from its branches in Olympic cities to Beijing to participate in a concentrated TD-SCDMA terminal performance study. According to published results of the study, the majority of mobile phones could support mobile videoconferencing, mobile phone TV, and other popular Olympic services, with essentially no problems. According to China Mobile’s comprehensive rankings from the study, current mobile frontrunners include the ZTE U85 as well as Datang and Samsung models.

Update 3: January 25, 2008

According to a Dow Jones News report (Davos, Switzerland), contrary to recent media stories, China Mobile is willing to have discussions with Apple Inc. (AAPL) about selling the iPhone in China.  For comments by China Mobile’s CEO, see post – China Mobile CEO Wang Jianzhou opens the door to Apple 

Update 2: January 18, 2008

For comments by China Mobile GM Data Services Gao Nianshu, see post China Mobile: Apple iPhone “Off the Record”

Update 1: January 15. 2008

CNBC’s Jim Goldman just concluded a post MacWorld Keynote interview with Steve Jobs.  Goldman asked Jobs about the reported “end to talks” with China Mobile.   According to Goldman, Steve Jobs said there were no such ongoing negotiations.  He noted that there has been only one China Mobile representative that has visited Apple’s Cupertino HQ and that meeting took place months ago.  

My guess … There have been some preliminary chats but “negotiations” (serious back and forth over a contract) have yet to happen.  

AT&T made an iPhone deal with Apple without the benefit of dissecting the product.  They put their faith in Apple and were rewarded.  China Mobile may not take this approach.  China (Nation/State) and China Mobile have made their new 3G (TD-SCDMA) network a priority (albeit a full-scale TD-SCDMA launch will likely be deferred until 2009).  China Mobile will demand that the new iPhone support their new 3G network.  And China Mobile may want “hands on” testing time with the new 3G iPhone before they hold serious contract talks.  Apple almost certainly has the new 3G model under lock-in-key in Cupertino.  While the new model may be relatively refined, Apple may not be ready to let China Mobile engineers run network tests with their new “oh so gorgeous” baby … just yet.

From the Jim Goldman video interview (regarding China Mobile) … Steve Jobs: “It’s very strange … we’ve met once with one of their representatives.  There have never been any ‘hot and heavy’ discussions either ‘on’ or ‘off’ … someone is just making this stuff up.”  See Video Here  

The 2008 iPhone Games 

January 11th 2008

~ Dan Butterfield

The current Apple iPhone negotiations with China Mobile bring to mind the recent James Bond film Casino Royale.  Bond loses the first major hand in a high stakes poker game to the nefarious Le Chiffre: “Oops … You must have thought I was bluffing Mr. Bond.”  Adding injury to insult, Le Chiffre’s girlfriend poisons 007’s vodka martini. Bond is soon fighting for his very life.  With a little ingenuity, and use of a portable defibrillator, 007 survives and returns to the table more determined than ever … Bond: “I’m sorry, that last hand (drink) nearly killed me.”  The game’s finale is an “all in” show down. Le Chiffre thinks he has it won … Not so fast!  Bond lays down a straight flush to take the $115 million dollar pot.

There is more than $115 million US Dollars at stake for Apple [AAPL] in China.  Of that you can be assured.  While there may be no poisoning of players’ drinks, the competitors at the table are deadly serious.  And they should be.  They have turf to protect.  Nokia, for one, sold more than 50 million mobile handsets in China during the first 3 quarters of 2007.  Research in Motion (RIM) is another key player.  RIM recently signed a deal with China Mobile to distribute their Blackberry 8700 smart-phone.   RIM has bet big on the China market.

Do these established smart-phone manufacturers really have anything to worry about? The Apple iPhone was once ridiculed as a device that was too expensive and ahead of its time to have any real impact on the one-billion-unit (world-wide sales projection for 2009) handset market.  The early dismissal of Apple as a serious competitor in wireless is now being reconsidered in telecom boardrooms and within the wireless analyst community. The iPhone is to be ignored at risk of losing market-share, and possibly one’s job!

So here we are at the metaphoric poker (negotiating) table.  Two power players, China Mobile and Apple, are now eyeing a pile of chips in the center of table.  Steve Jobs may not have the combat skills of 007, but he knows how to capture the consumer’s imagination and he has the power to deliver an object of desire – Ai Feng (“Love Craze”).  Ai-Feng is the iPhone and it’s a bone fide black-market hit.  Despite the high cards that China Mobile holds, the savvy players recognize that Apple too holds a winning hand.  And this does not have to be a winner-take-all game.  There is plenty to share.  An “iPhone exclusive” is not an offer that can easily be dismissed … even by the world’s largest cellular operator. 

Deal or no Deal?

It is no secret that Apple and various potential China partners have engaged in some dialogue.  Where do these “iPhone in China” negotiations now stand?  The “in the know” parties are not talking.  Yes there have been one or two statements for the media.  The China Academy of Mobile Communications has commented and so too have anonymous Chinese telecom executives.  But these short comments (and hints of disagreement over “revenue sharing”) appear to be for negotiation leverage rather than to enlighten.  For now the truth remains a closely guarded state secret.  That may be literally true.  Despite the desire by multiple parties to bring iPhone to China in 2008, no Ai Feng deal has yet been announced.  There has been plenty of “deal or no” speculation in the press.  Some of these reports are fact-based and others are rumor.  Inquiring minds want to know.

Who is Playing?  China Mobile, Apple and … ?

There are two major mobile operators in China – China Mobile and China Unicom.  China Mobile is the dominant wireless carrier with 356 million of some 523 million subscribers in China.  Given China Mobile’s massive subscriber base, no question they are the most logical carrier-partner for Apple.  There are alternative iPhone partners and China Unicom, for one, recently stated that they have “not begun talks with Apple” and they are “open to cooperating with Apple.”  Much can be read between the lines here.  If Apple has not yet approached the second largest wireless carrier in China (Unicom has 156 million subscribers), why not?  Okay, I can think of a few reasons, but the overriding and obvious reason is that they remain in exclusive conversations with China Mobile.  Apple would never completely close off their options to negotiate with other parties.  In addition to the Unicom partnership option, there are several China retail distributors (D-Phone and Shenzhen Aisidi) that would love to help Apple sell the iPhone.  However, when all options are analyzed, China Mobile is the name that keeps coming up.  They have the massive subscriber base and full support of the China Ministry of Information.  China Mobile will also be the first carrier to launch (Summer ’08) the new “built for China” 3G (TD-SCDMA) Network. 

“iPhone in China” Questions and Answers

Since there are so many unknowns, we are left to speculate.  Here comes the “wild ass guess” portion of the show.  We’ll do this in the form of a series of “iPhone in China” questions followed by “best guess” (mostly out of thin air) answers.

Q: Will there be an iPhone launch in China in 2008?

A: Yes! And it is here (in China) now.  The black market for iPhone is thriving [Psst! Wanna buy an iPhone?].  You can pick one up for about $680 US Dollars.  But an “under the counter” launch is not what Apple and China have in mind.  The official iPhone distribution won’t come until a deal is made with a front-line China carrier.  It will almost certainly happen next year and the 2008 Summer Olympic Games are a logical launch date.  This timeframe coincides with the new China 3G Network (TD-SCDMA) launch, and the Games are an ideal marketing venue.

Bottom line … China wants the iPhone and Apple wants China. It will happen.  Stay tuned.  It’s a good bet that come August 2008 we will see an “Olympic themed” China Mobile/Apple iPhone ad campaign.

Q: Is Apple negotiating with players (operators or distributors) other than China Mobile? 

A:  Possibly.  It is highly likely that Apple’s primary negotiations have been with China Mobile.  There are other potential partners including: China Unicom, Shenzhen Aisidi and Dixintong (D-Phone).  Yet Apple appears to have maintained a respectful allegiance (talks only) with China Mobile.  As with many negotiations, there have been some disagreements and perhaps a bit of gamesmanship.   Chinese sources have released anonymous statements to the press ”Our business model does not entail sharing revenue with manufacturers.” Then more leaks to the press – “China Mobile’s talks with Apple quitted due to the divarication on revenue sharing.” 

Sounds ominous.  Yet we later learn that talks never really ended.  So what are these leaks all about?  Quite possibly a tactic to shave the share of subscriber revenue that Apple has requested. 

Bottom line … I do not believe Apple would engage with any parties other than China Mobile unless and until it is clear that a deal cannot be done on terms agreeable to both parties.

Q: What motivations does China Mobile have to make an iPhone deal with Apple?

A: China Mobile may have the biggest stack of chips (356 million subscribers), but the vast majority of their subscribers are pay-as-you-go. And China Mobile’s most valued (high revenue) customers – smart-phone owners on contract – are showing keen interest in the iPhone.

China Mobile might see an iPhone exclusive as a means to:

  1. Address declining revenue-per-subscriber (iPhone will come with data-plan fees and fuel growth in fees payable to carriers by way of wireless value-added service providers).
  2. Motivate millions of their pre-paid subscribers to go “on contract.”  287 million of China Mobile’s 356 million subscribers are pre-paid (pay-as-you-go).
  3. Corral high revenue iPhone buyers who sans a China Mobile deal will buy the iPhone anyway … through the black-market or via another carrier. 

When you buy an iPhone from China Mobile, you will go on contract and you will have a data-plan (“Monternet” platform) that will generate significant additional revenues. If China Mobile CEO Wang Jianzhou is looking for a testimonial, he need only ask AT&T CEO Randal Stephenson:

December 10th Randal Stephenson video interview with David Faber on CNBC [Topic: Revenue growth by way of data on wireless] –

When somebody gets an iPhone in their hand, and here is an Internet capable device in the hand, that customer’s data usage doubles! Stephenson continues:

“[iPhone] has raised an awareness, in terms of what is possible on a wireless device, like nothing I have ever seen! … Put an iPhone in my hands and I suddenly go from being a skeptic … to a believer!” 

In consideration of the iPhone’s potential power to attract and retain China Mobile customers, it is probable that China Mobile has done some iPhone due diligence:

v     Rated the top smart-phone by Consumer Reports.

v     Time Magazine’s 2007 Gadget of the Year. 

v     PC Magazine’s Readers Survey 2007 – iPhone

PC Magazine: iPhone owners passionately love their devices. In its first year on the survey, the Apple iPhone scored a stunning 9.1 out of 10 from our readers, beating the ratings that every other phone, from every carrier, in nearly every category, has received in the three years we’ve been including cell phones. The iPhone’s 9.6 scores in music and video playback might have been expected, but its 8.2 for call quality (a score significantly better than average), another 8.2 for coverage, and an 8.0 for earpiece volume show that it’s not just the i our readers like. They love the phone, too.”

Q: The press is running stories that China Mobile and Apple have ended negotiations.  Are these reports to be believed?

A: No!  Statements were made to the press about an impasse over revenue sharing.  When the “talks collapsed” rumors persisted in the media, China Mobile issued a statement to correct the record.  Negotiations continue. It’s game on …

Q: It appears that China Mobile holds the cards to win on “no revenue sharing.”  How can Apple possibly play and win this hand?

A:  Apple to China Mobile (just a guess here): “Calling it ‘revenue sharing’ is actually a misnomer”  When a deal is eventually done, I expect the terms might describe ongoing “service fees” paid to compensate Apple for supporting initial carrier activation, and for providing technical support and ongoing iPhone upgrades via iTunes. These service fees will essentially be revenue sharing by another name. Semantics will be important given the public proclamations (“we don’t share revenue”) by China telecommunications execs. Calling revenue sharing by a more appropriate name, and clearing explaining the rationale for said payments, might be an important means to allow all parties to save face.

Is a monthly fee payable to Apple justified? Yes! iPhone is a revolutionary mobile device and Apple provides unique value-add.  The first generation model has already undergone several upgrades. These enhancements bring greater customer satisfaction, encourage additional data-plan usage, and help carriers to retain customers. Moreover, Apple iPhone activation and upgrades are delivered and paid for by Apple without the need to involve carrier technology or customer support.  Bottom line … Fee-sharing to compensate Apple for their ongoing service/support appears to be a reasonable request.

Q: Is it possible that Apple and China Mobile have already (quietly) reached a deal to launch iPhone in China?

A: Yes!  After reviewing a number of stories and media statements, it appears that Apple is presently in serious negotiations with China Mobile.  In fact, it is entirely possible that Apple and China Mobile have already sealed a deal.  Why would such an important deal be kept secret?  Simple.  This is not the right time for Apple or China Mobile to make any public announcement.  It would only invite non-stop questions about the “new 3G” iPhone model, the contract terms and revenue sharing, etc.  This would be too much of a distraction for Apple during the Euro iPhone launch and holiday iPhone sales period. This would also be a distraction for China Mobile as they finalize their new 3G Network (TD-SCDMA) “go live” plans.

Q: Assuming no deal has yet been done, are there any spoilers who may have influence in China Mobile’s negotiations with Apple?

A: Research in Motion (RIM) and Microsoft, to be sure, will not be singing Apple praises.  You can also list a few handset manufacturers (Ericsson, Motorola, Samsung, HTC, LG and Meizu) who have their China market-share to protect.  The biggest spoiler in the crowd might be Nokia.  Nokia sells more phones than anyone in the China, and it’s hard to imagine that Nokia will stay silent while China Mobile and Apple play their hand.  I keep envisioning a Finnish looking chap, peeking at the cards, leaning over the shoulder of Wang Jianzhou (China Mobile CEO) and whispering into his ear – “Raise the bet … Apple isn’t the only one with a cool touch-screen.”  But Wang Jianzhou is nobody’s fool.  The iPhone is a popular black-market device, and too potentially profitable to over-play this hand.  So no more kibitzing Nokia!  Have a Martini (shaken not stirred) and watch the game. 

Q: The average Chinese salary is low by Western standards.  Can they afford the iPhone?

A: Most of them? … an emphatic no!  Hundreds of millions? … an emphatic yes! 

The average urban Chinese worker the makes the equivalent of about $120 US dollars per month.  The average middle class salary is the equivalent of about $641 US dollars per month.  Chinese tend to spend less and save more than their Western counterparts.  It is not uncommon for middle class Chinese to spend the equivalent of one month’s salary for a luxury item; particularly if that item (iPhone) has status and gets used every day.  A smart-phone that enables a superior net connectivity experience and SMS (text) messaging will get used.  Urban mobile users in China love to send text messages – 3.4 messages per phone, per day!

What is most interesting is an October 2007 report on luxury goods consumption in China. The numbers tell a compelling story.  China currently has:

v     An estimated 300,000 millionaires and rising.

v     A middle class of 250 million (making an equivalent salary of $550 to $1,000 US dollars per month) and rising.

v     A total population of 1.3 billion, that according to Ernst & Young, spent $6 billion US on luxury goods last year (2006).

v     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.

Q: What is the potential market-size for Apple iPhone in China?

A: Let’s look at the total mobile user base and pencil in some “back of the napkin” estimates for iPhone. Coming up with 2008 sales numbers may be difficult given the many variables surrounding the official launch date.  My sales guesstimates will therefore extend to end-of-year 2009.

As of Spring 2007, there were 523 million mobile subscribers in China (356 million are with China Mobile). The density of subscribers in major cities (Beijing, Shanghai, et al.) is impressive.  Virtually 100% have a handset (factor in that many urban-dwellers own more than one phone).  As in most nations, high-end (smart) phone owners are the minority – approximately 5%.  While this percentage is small, that 5% totals to 26.2 million smart-phone owners. Many are prime candidates for an iPhone.  Now add in the fact that the middle class populace in China is growing rapidly and will soon be looking to upgrade their mobile phone and net connectivity experience. 

End of Year 2009 iPhone Projections in China Market:

Assume iPhone captures a modest 2% of the 95% (.02 X 496.85 million) cell phone owners in China who presently do not own a smart phone = 9.94 million “moving up” to an iPhone.

Assume iPhone captures 25% of current smart-phone owners (.25 X 26.2 million) = 6.55 million moving to a better smart-phone. 

This totals to 16.5 million iPhones in China by the end of 2009.  Assuming iPhone launches in August of 2008, this would represent sales over a 17-month period.

Looking out over the next five (5) years, sales numbers for iPhone in China could be enormous.  Apple’s iPhone operating system and innovation could very well keep iPhone at the front of smart-phone pack for years to come.  Now factor in a recent survey indicating that 80 million mobile users in China ready to switch to 3G.  Wireless Intelligence analyst Joss Gillet predicts that China Mobile’s own 3G (TD-SCDMA) connections could reach 100 million users by 2012.  Add in another 50 million or so from other carriers and you are looking at huge base of potential iPhone owners.

Q: Who are the China cellular players and what role do they have in this China Mobile / Apple iPhone stakes? 

A: The chart below lists a few …

Primary Players

Role in Apple iPhone launch in China

China Mobile

Potential Partner – China Mobile is the world’s largest mobile phone carrier/operator with 356.26 million customers and growing.  China Mobile alone is projected to have 112 million 3G customers by 2012.

China Mobile Subscribers




Subscribers as of Oct ‘07




                Subscriber Base (in thousands)


Apple Inc.


iPhone. Touching is believing.

Apple Inc is a manufacturer of computers, iPods and the iPhone.  Apple is renowned for creating elegant and easy to use products.


Apple’s iPhone is Time Magazine’s 2007 Gadget of the Year and was also recently rated the top smart-phone by Consumer Reports.


Using their iTunes platform, Apple has developed a revolutionary approach in the iPhone (carrier) activation process.  Apple also provides ongoing iPhone upgrades and technical/customer support.


Apple is rumored to have a 3G iPhone under development that will support China’s new TD-SCDMA standard and several other 3G protocols.

Also in the Game

Potential Role (Partner, Gatekeeper or Spoiler)

China Ministry of Information

Gatekeeper – The China Ministry of Information is assisting with China’s TD-SCDMA 3G rollout and they have a say in all of the key telecommunications initiatives in China.


The China Ministry of Information is the PRC agency responsible for regulation and development of the postal service, Internet, wireless, broadcasting, communications, production of electronic and information goods, software industry and the promotion of the national knowledge economy.

China Unicom


Potential Partner – Second (2nd) largest mobile phone operator in China with 156 million customers.  Unicom could step in should negotiations with China Mobile come to an inauspicious end.


NOTE: China Unicom has no immediate plans to build a mobile network based on China’s home-grown TD-SCDMA (Time Division Synchronous Code Division Multiple Access) 3G technology.

China Unicom is currently building a 3G network in Macau, based on CDMA2000 (Code Division Multiple Access) 1X EVDO (Evolution Data Optimized) technology.


Spoiler – Cellular manufacturer and competitor to Apple.  Nokia sells 39% of their handsets in China and will vigorously defend this market-share. Nokia accounted for 35 per cent of the Chinese handset market by units in the third quarter of 2007. 


Spoiler – Vodaphone is a major international carrier/operator with a 3% ownership stake in China Mobile. 


Ericsson, Motorola, Samsung, HTC, LG, Meizu,


Spoilers – Cellular handset manufacturers with a stake in China – All are competitors to Apple in the wireless device space.

China Telecom

Potential Partner – With a subscriber base exceeding 200 million, China Telecom is the largest fixed service (land line) telecommunications carrier/operator in China.  China Telecom also provides Internet services (62% of China’s total Internet bandwidth), and portions of the Xiaolingtong wireless system.

Dixintong (D-Phone)

Potential PartnerD-Phone may have future role in iPhone distribution. D-Phone is one of China’s largest mobile handset retail chains. The company has a retail presence in 24 provinces and cities spanning the country.

Shenzhen Aisidi

Potential Partner – Shenzhen Aisidi may have future role in iPhone distribution.  Aisidi has 39 branch offices and is a one of the largest mobile handset distributors in China. Aisidi features Samsung.



Q: Who said what, and when?

A: See chart below …




What They Said (Quotes are from various news reports and may reflect less than perfect language translations)

China Mobile

Wang JianzhouOn November 11th 2007 – China Mobile’s CEO Wang Jianzhou confirmed that his company has been in discussion with Apple to bring iPhone to China, “because our customers like this kind of fashionable product,”



A few days later, various reports were leaked to the press indicating that negotiations had stalled.  The stumbling block?  Apple’s revenue sharing business model whereby a portion of the cellular customer’s monthly subscriber fee is paid to Apple.  Reuters quote (November 14th 2007) attributed to an unnamed China executive or government official:

“Our business model does not entail sharing revenue with terminal producers – and we don’t share revenue. That’s a Chinese rule!”


China’s Academy of Mobile Communications

On November 14th Huang Xiaoqing, head of China’s Academy of Mobile Communications, threw a pail of cold water the on the idea that any agreements had been reached between China Mobile and Apple …

“In China, SIM cards are free to work with any mobile phones, and our carriers do not share subscription revenue with handset manufacturers. Therefore, iPhone’s current business model isn’t a good fit for China.”


Huang did confirm that there had been ongoing discussions over the iPhone “China Mobile has had contacts with Apple, but it was very preliminary, no agreements were reached.  Of course, China Mobile welcomes the iPhone in China, but only as a handset” (i.e. “we’re not wild about the revenue sharing notion”).


Apple has confirmed that they have engaged in discussions with potential cellular partners in China.  That’s it.  No other comments or details.

Shenzhen Aisidi

November 25th 2007 – a press report quoted an anonymous source (Apple is) “rumored to appoint Shenzhen Aisidi Industrial Co., Ltd., one of the largest distributors in the country for mobile telecommunications products, as its distributor for iPhone products.”



November 29th 2007 – Chen Jingsheng, Dixintong Vice President, said “iPhone of Apple Inc. will make its debut in the Chinese market in early 2008 via the stores of D-Phone” (mobile phone retailer Dixintong).

China Unicom

On December 4th 2007 – China Unicom Vice President, Li Zheng Mao, said that China Unicom Ltd. has “not begun talks with Apple Inc. to offer the popular iPhone.” But China Unicom is still “open to cooperating with Apple.”



Q: Much seems to depend on China’s new 3G protocols.  Will China’s 3G be ready in 2008?

A: It appears that China’s new 3G (TD-SCDMA) standard will indeed be ready in time for the 2008 Summer Olympic Games in Beijing. But there are no guarantees and there have been previous “it’s coming soon” missed timelines.

Q: Will iPhone be usable throughout China under the new 3G standard?

A: The new China 3G protocols will not be able to cover all of China for years to come.  Hence the new (rumored to be under development) next-gen Apple iPhone chip-sets may need to be compatible with several 3G standards,* and theoretically could be launched in China regardless of whether the new TD-SCDMA standard is ready or remains “under-construction.”


*Next generation Apple iPhone may need to support:


v TD-SCDMA – China-only protocol

v CDMA 2000 in various forms: 1xRTT, EV-DO, Rev A, Rev B,


v 4G (WiMax)


Q: We know that 3G is coming to China, but not much else. Is there any information regarding the status and extent of 3G coverage in China?

A: While China has not yet assigned any 3G licenses, there have been a number of TD-SCDMA “tests.”   Experimental TD-SCDMA networks trials began running in four (4) cities in 2005.  These test have now been expanded.  Deployment scale TD-SCDMA trials began running in ten (10) China cities in April 2007.  The Beijing Summer Olympic Games may be the “go live” timeframe for TD-SCDMA albeit this might be a partial rollout with full deployment in 2009.

WiMax is coming: One interesting side note is China Mobile’s stated intention to deploy a WiMax network in time for the Beijing Olympics.  WiMax (4G) has been referred to as WiFi on steroids. A single WiMax antenna can cover to 1 to 8 kilometers depending on elevation and line of sight (compared to a few hundred feet for WiFi).  This extended range will be a major benefit to mobile customers that carry WiMax enabled (next gen) smart-phones.  The first generation Apple iPhone, for example, will automatically detect and make a WiFi connection when/where available.  Ultra-fast WiFi (soon WiMax) connection speeds make for a better user experience and encourage greater use of a mobile carrier’s data-plan.

Here are the cities that should be running the new TD-SCDMA standard by Summer 2008:

(from North to South)

  1. Shenyang
  2. QHD
  3. Baoding
  4. Tianjin
  5. Beijing
  6. Qingdao
  7. Shanghai
  8. Xianien
  9. Guangzhou
  10. Shenzhen


It is no coincidence that six of the ten cities in the China 3G test group are 2008 Olympic Games host-cities.  You can also add Seoul (Korea) into this test group. SK Telecom is also running this new China TD-SCDMA trial.

Q: Will China continue to support additional 3G standards until TD-SCDMA is ubiquitous?

A: The official ten-city China tests are using TD-SCDMA handsets (w chip-sets) that support multiple 3G standards – TD-SCDMA + GSM + GPRS.  Supporting multiple protocols will ensure that there are no gaps in voice coverage.  It’s interesting to note that these China tests also support 3G video-telephony (3G-324M). Now that would be a fun next-gen iPhone feature, wouldn’t it?

I am sure there are many more questions that were not addressed here.  Please let me know if you feel that I missed something important.  Comments and questions are welcome: daniel.butterfield@comcast.net

Happy New Year!

Full Disclosure: The author is long Apple [AAPL] shares at the time of writing.






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