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Posts Tagged ‘W-CDMA’

china-iphone-300x2081crystal-liu-pic-0014BusinessWeek has just posted a rather pessimistic article on iPhone’s prospects in China. If you’re an iPhone fan take a deep breath, exhale and relax. In iPhonAsia’s opinion, this article – Why China won’t fall for the iPhone – is nothing more than straw man hit piece. To win the debate using the straw man strategy, you simply define your opponent’s case using faulty suppositions. You then easily knock down your opponent’s argument like a flimsy straw scarecrow. 

Let’s examine BusinessWeek’s straw stuffing:

  • Straw One: “Nokia sold 71 million handsets in Greater China last year” 

BusinessWeek highlights these numbers apparently to show how weak Apple’s position is compared to Nokia, the dominant handset manufacturer in China. Thank you Captian Obvious. Nokia has been in China for years and Apple has not yet officially entered China. Although 1.5 million grey market iPhones in China is not a bad testimony to the potential demand.

China handset market Oct 2008

China handset market Oct 2008

What BusinessWeek fails to point out is that Nokia’s 1st Quarter 2009 “sales fell 27% from the year-earlier quarter, operating profit plunged 96%, and the average selling price for the company’s portfolio of mobile phones—a closely watched indicator of demand—fell to $86 from $94 at the end of 2008.” Don’t believe me? I just quoted from an April 16, 2009 BusinessWeek article that further notes the current Nokia handset margins average about 9%.  Here’s a news bulletin … iPhone Margins* in the US are well north of 50% when you include the carrier subsidy. If you totally eliminate the carrier subsidy (using the 16G model as an example) the margin remains at a stellar 18%.*

  • Straw Two: “iPhones are expensive.”

Peppered throughout the BusinessWeek article is the theme that the iPhone is just too expensive and therefore will not capture significant marketshare in China. What BusinessWeek fails to understand is that the iPhone will never be the “low price” leader and has no ambitions to undercut the price of basic cellphones or crippled iClones. Motorola tried the low price strategy and it has nearly driven them out of the China market

As Mark Sue of RBC Capital put it (January 18, 2007): “Motorola might want to reconsider its strategy of having yesterday’s hit phones becoming tomorrow’s free phones!”

Pssst BusinessWeek … It’s margins that matter. If you fail to pay attention to margins, you’re following the Peggy Bundy School of Economics. The majority of handset manufacturers in China need to sell 10, 20 or even 30 phones to capture the same bottom-line profit as one iPhone sale. To put it simply, iPhone does not need to capture an “elephant size” share in China to be a money-maker for Apple, China Unicom and thousands of app developers.

BusinessWeek goes on to suggest that China Unicom cannot afford to subsidize iPhone in China and they site the price for unlocked iPhones in Hong Kong at $800 per. The implication is that Apple will not be able to offer the new iPhone 3.0 in China at a price much below $800. All we can say is “stay tuned.” The new iPhone for China will retail for less than 5,465 Renminbi ($800 US).

iphone-china-unicom-11One interesting item is the rumor that China Unicom has successfully negotiated a 50% share of Apple’s China iPhone App Store revenues. The normal split has been 30/70 with the lion share percentage to developers. Under the China Unicom split, it might look something like 15/15/70. It has also been rumored that, in return for a share of the app store revenues, China Unicom will provide a “per unit” subsidy payment (amount unknown) to Apple. In the US it has been surmised that AT&T’s subsidy payment to Apple has been $300 per unit.*

  • Straw Three: “TD-SCDMA (China Mobile’s network) handsets are retailing for less than US$250”

China TelecommunicationsBusinessWeek feels that iPhone may have trouble competing with lower priced TD-SCDMA phones that will run on China Mobile’s new 3G network. This is an easy one. TD-SCDMA phones should be priced lower. In this case, the old truism applies “you get what you pay for.” The current crop of TD handsets are not smartphones and really don’t compare to iPhone. The handset competition may get better when (don’t hold your breath) ZTE, LG,  Levono, HTC, and Nokia finally introduce their TD smartphones … For now, these “coming soon” phones remain on the drawing board. They will also be dependent on OPhone, China Mobile’s new mobile operating system (MOS). OPhone has received much press but it has yet to launch. Consider also that China Mobile is taking the highly unusual step of providing R&D funding (RMB 600 million – $87.77 million US) to 12 TD-SCDMA phone and chip manufacturers. 

Why is this subsidy necessary? iPhonAsia believes the money is being fronted because handset manufacturers are unwilling to risk (spend) their own capital to develop new TD smartphones (with OPhone OS) that must be integrated with China Mobile’s value-added services platform. This process may be more technically challenging and less profitable than China Mobile’s well-paid consultants first promised.

one-billion-appsWill third-party developers abandon China Unicom and the Apple iPhone App Store (70% payout to developers) in favor of unknown opportunities via China Mobile’s new app store – a.k.a. Mobile Market? Not likely. Where would you invest your time and money? We have heard virtually nothing of the OPhone SDK and we have yet to hear how China Mobile will share their Mobile Market revenues with developers (Update: China Mobile will share only 50% of Mobile Market revenues with developers – ouch!). And then there’s the question of when Mobile Market launches in China? Thus far China Mobile has only stated by “year end.” It’s a fair bet that Apple and China Unicom will have iPhone apps “officially available” in China before Mobile Market is open for business.

  • Straw Four: The App Store is not localized for China

BusinessWeek explains that AppStore has already launched in China for Apple’s iPod Touch, but it is in English and many of the applications are international. 

I guess BusinessWeek does not believe that Apple will take steps to further localize the App Store for China. BusinessWeek is simply mistaken. Soon after the iPhone is formally launched in China, look for many new “for China” apps that have been fully localized for the China Market.

  • Straw Five: China’s mobile app companies and developer community prefer to develop in Java or Nokia’s symbian.

BusinessWeek also adds “The selection of unauthorized Chinese applications for ‘jailbroken’ phones is better …  Most won’t bother to rewrite applications for a niche phone, especially given Apple’s conrol-freakery concerning what applications it permits in its store.”

If you think that Apple might be finicky about the nature and “tastefulness” of apps in its store, then let me introduce you to the official censors in China. They invented the term “control-freakery.” If there’s money to be made, the apps will be modified, if necessary, and submitted to the China App Store.

200902041829020540776As for the contention that “China’s developers prefer Java and Symbian and won’t rewrite apps for a niche phone”… BusinessWeek is in for a surprise. iPhonAsia has consulted with many iPhone developers who are hard at work on “for China” apps. iPhonAsia recently had lunch with the CEO of Extend Logic, an IT development company based in Santa Clara and Xi’an China. Extend Logic and their China-based subsidiary Knowledge Surf, have been directly involved in training new iPhone and Android developers in both the US and China. Extend logic is one of many companies training tens of thousands of developers.

The iPhone momentum is growing, and it’s not just for fun and games … Enterprise is rapidly coming aboard the iPhone train. Thousands of corporations are now somewhere along the iPhone app development path. If you check any job board, you will find that iPhone developers are very much in demand.

Okay, so it's about 200K students**

Okay, so it's downloads, not students**

Want more evidence? The Stanford University iPhone Application Programming CS193P class is now the most popular iTunes U course with over one million (1,000,000) downloads.** How many of those downloads are from developers in China? Who knows? But it is surely in the tens of thousands.

The images below show the most popular iPod Touch apps on the iTunes App Store in China. My guess is that one or two of these apps will be available for the “niche” iPhone. 

Picture 1Picture 2

Third-generation (3G) networks are new to China and so too are app stores and proprietary mobile operating systems. There are many moving parts in China carriers’ battle for smartphone consumers. The fact is that it’s too early to pick the China’s smartphone winners and losers. But I would not count out iPhone … the pathway is littered with the corpses of pundits and paid consultants who bet against Apple’s iPhone.末端

♦♦♦♦♦♦♦♦♦

* Regarding iPhone margins … here are iPhonAsia’s unscientific (“back of the napkin”) calculations using iSuppli numbers for cost of goods (COG) …
iPhone 3G 8 gig model COG tallies up $174.33 (give or take) + about $50 in royalties = $224.33 in costs.
iPhone 3G 16 gig model COG is about $20 more than the 8 gig model or $244.33

Apple is selling the iPhone to carriers for about $500 to $550. The retail price is $199 or $299 (knock off a couple of bucks if sold through BB or WalMart).
That makes for healthy margins…
8 gig iPhone
Revenue = $499 ($199 + $300 carrier subsidy)
COG = $224.33 (materials + royalties)
Gross = $274.67
$275/$499 = 55% margin

16 gig iPhone
Revenue = $599 ($299 + $300 carrier subsidy)
COG = $244.33 (materials + royalties)
Gross = $354.67
$355/$599 = 59% margin

♦♦♦♦♦♦♦♦♦

**As Apple 2.0 points out …”although the total is more than a million downloads — 1.2 million to be precise — that’s the sum of all the course videos (15 so far). A far smaller number of people, 186,500, downloaded the introductory lecture. More recent lectures, representing the meat of the semester, have a sustained download rate of more than 200,000 per class.”

 

 

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iPhone specs on China Unicom’s website  

Apple iPhone 3G information and specifications are now posted on China Unicom’s Shangahi website. China Unicom’s regional subsidiaries tend to be somewhat independent, yet posting iPhone specs on the company’s Shanghai website prior to a formal announcement may cause someone to get their wrist slapped. Network World has more on this developing story > HERE

China Unicom spokespersons are not commenting and no official iPhone deal announcement has been made… yet. For full backstory on iPhone in China negotiations read > HERE

China Unicom showing Apple's iPhone

China Unicom showing Apple's iPhone

picture-24

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apple_unicom2Update: China Mobile’s CEO spoke to a reporter on Saturday, March 21. According to Wang Jianzhou, China Mobile’s talks with Apple have stalled, albeit “the door remains open.” This is no surprise as Apple is moving forward with China Unicom. Details > HERE (in Mandarin)

iPhonAsia Comment: Here (below) is iPhonAsia’s response to Dr. Cheng Dejie’s March 20 article China Unicom’s Apple deal may leave a sour taste published via Interfax. Read > HERE

iPhonAsia Responds to Dr. Cheng Dejie (Interfax)

Dear Dr. Dejie:

Telecom Analyst Dr. Cheng Dejie

Telecom Analyst Dr. Cheng Dejie

Thank you for your interesting article. Your arguments are supported by facts, and I agree with many of the discussion points you’ve presented. Yet there is a general theme in your article that I do take issue with. That is the idea that China Unicom may regret any agreement they make with Apple that compromises their ability to control wireless value added services (WVAS).

The title of your article “China Unicom’s Apple deal may leave a sour taste” clearly implies that a deal with Apple might not be mutually beneficial. I would disagree. China Unicom has had ample opportunity to conduct their due diligence and analyze the market opportunities that iPhone presents. To conclude that China Unicom may be taking steps that will not be in their long-term best interest is, in my opinion, an underestimation of China Unicom executive management’s business savvy. I would agree with your point that any successful negotiation with Apple would require that the iPhone (Apple) retain control over many core wireless value added services (WVAS), such as iTunes and the Apple App Store. However, I think you will be surprised to find how ready, willing, and able Apple is to make strategic compromises to better serve Chinese wireless consumers.

iphone-china-unicom-11I believe in the long run, focusing on what’s best for the Chinese consumer, will prove to be the winning strategy for China’s wireless telecom companies. In the past, many carriers imposed their will on handset manufacturers. Many phones were customized to suit the carriers’ branding and proprietary services. Industry insiders often referred to these customized handsets as “crippled phones” due to their ability to serve only one master … the carrier.

steve_jobs_iphoneThat was then, this is now. On January 9, 2007, during the MacWorld Keynote, Steve Jobs unveiled the iPhone, the first truly “smart” mobile device to converge cellular service with music (iTunes) and the real Internet (not a WAP). Millions of consumers were immediately smitten. Of course iPhone did not receive uniform praise. The loudest “boos” came from competing manufacturers/carriers and their paid “media savvy” consultants. But the consumer wasn’t listening to pundits and critics. All they had to do was pick up an iPhone with its vibrant screen, Safari browser to the real Internet, highly intelligent and intuitive user-interface (no manual necessary), and they were convinced. It was a “must have.” What’s more, the iPhone is not a prisoner to fix buttons. It is designed to evolve. Evolution is part of Apple’s promise to buyers; a promise that Apple has delivered on again and again. My own 1st generation iPhone has now been (easily and at no cost) upgraded multiple times and I’ve downloaded dozens of cool and fun applications.

800 million downloads!

800 million downloads!

I am not alone in enjoying the iPhone evolution/revolution. Over 17 million iPhones have now been sold and as of March 17, 2009, after only 8 months of operation, an astounding 800 million applications have been downloaded from the Apple App Store hosting over 25,000 applications. And now the 3.0 OS upgrade will take iPhone to a whole new level. The game changed forever on January 9, 2007. A paradigm shift is underway and mobile communications will never be the same.

Back to the key question you raised in your article… “Who can or should control the WVAS?” Right now everyone (carriers and OEMs) is charging full-speed ahead to build their own app store and proprietary value-added services. Some may succeed, and others will no doubt waste 10s of millions in a vain effort to create a winning platform. I believe carriers that elect to build their own WVAS and also embrace smart phone manufacturers’ WVAS will wind up the winners. This openness will also make for happier wireless consumers.

I am not privy to any of the plans or strategies that may have come from current Apple and China Unicom negotiations. One might imagine that China Unicom will pursue their own WVAS while at the same time allowing iPhone subscribers to enjoy many of the current Apple services. Apple and China Unicom can learn from one another and forge a successful partnership. This partnership can be financially rewarding for both Apple and China Unicom. Most importantly, Chinese wireless consumers will be the biggest beneficiaries of this partnership.

Consider that Apple has gone to great lengths and expense to make the App Store a true e-commerce vehicle for developers who receive a 70% share of all application revenues. There is no question in my mind that

iPhone integrated with peripheral

iPhone integrated with peripheral

Apple would work closely with China Unicom to ensure that there are a wealth of “for China” applications on Apple’s China App Store. I suspect that several new iPhone applications will be developed directly by China Unicom, who’ll receive at least 70% of the revenue. One or two of these applications may even be preloaded on an iPhone for China Unicom. After the iPhone 3.0 OS release, applications can be developed with “in app” purchase options (e.g. online magazine subscriptions, city guides, etc.). There are also now many ways an iPhone can interact with peripheral devices. This presents additional opportunities for ongoing revenue for businesses and developers and greater “value-add” for Chinese iPhone users.

The bottom line… China Unicom’s Apple deal can be very sweet indeed.

More background on Apple and China Unicom iPhone negotiations …

NOTE: The following is based on my research together with a large measure of outright guesswork. In other words, my analysis should be filed under “rumor,” “speculation,” and “opinion.”

Gang Li

Gang Li

A China Unicom executive contingency, led by Executive Director of Mobile Communications Gang Li, arrived in Cupertino on Sunday, March 8th for meetings with Apple. The objective of this summit was to move iPhone negotiations to a serious level. The negotiation points likely included:

  • The issue of a subsidy payment from China Unicom to Apple for each “on contract” iPhone.
  • The issue of WiFi and China’s WAPI security standard. Apple may be required to disable WiFi on iPhone in China. This would not be unprecedented. Apple has already disabled WiFi for iPhone in Egypt.
  • The issue of exclusivity. Whether China Unicom will have exclusive carrier rights in PRC and whether any “exclusive” will be limited to “3G” or to all iPhone models and any other Apple 3G enabled mobile device (3G tablet).
  • Whether Apple will agree to pre-load iPhone with applications that are popular in China (e.g. Youku vs. Youtube).

A recent report via ccw.com.cn (传联通就引入iPhone达成协议) indicates that the China Unicom

iPhone 3.0 OS

iPhone 3.0 OS

delegation remained in discussions for a full two weeks and did not return to Beijing until the evening of March 18. It is therefore quite possible that the China Unicom team was in town for the Apple 3.0 presentation (< watch) delivered at Apple’s HQ in Cupertino on St Patrick’s Day (March 17). My guess is that the China Unicom executives were sequestered in the upstairs conference room (above Apple’s Town Hall facility) where they could watch the iPhone 3.0 event by closed-circuit television. This extra discretion would be important as the national media was invited to the 3.0 event and a group of well-dressed Chinese gentleman would raise journalists’ curiosity, and might cause the press to connect the dots to China Unicom. Apple and China Unicom would prefer that any “deal” remain a secret until all formal agreements and China Ministry (e.g. MIIT) approvals are signed sealed and delivered.

What are the final steps? The deal may be concluded after the Ministry of Industry and Information Technology (MIIT) gives iPhone its official approval (soon). There have been reports that Apple provided China Unicom with a non-WiFi iPhone for final MIIT tests. Another key step might be an Apple visit to

China Unicom Chairman Chang Xiaobing

China Unicom Chairman Chang Xiaobing

China. My guess is that a group of senior Apple executives will travel to Beijing to meet with China Unicom CEO Chang Xiaobing and other executives. This would be a professional courtesy and show of respect for the China Unicom delegation that recently visited Cupertino. It would also be an opportunity for Apple to meet with Lou Qinjian, Vice Minister of China’s MIIT. There is also the possibility of a side trip to meet with China Mobile CEO Wang Jianzhou and continue those “cooperation talks” that we’ve heard so much (or so little) about. Spring is a nice time of year to visit China. There are sites to see after all.

May 17 for an announcement with a launch this summer?

There have been several reports suggesting that an official iPhone agreement between Apple and China Unicom could be announced on May 17. This is the same day that China Unicom will be launching, on a trial basis, the new W-CDMA 3G network in 55 major Chinese cities. The full network (283 cities) rollout will not happen until the end of 2009. May 17 appears to be about the right timeframe to make an official “iPhone in China” announcement; however, an iPhone launch may need to wait until the summer months. Apple’s Worldwide Developer Conference is often scheduled for mid-summer and that might be the right forum to unveil new iPhone models. I would not expect a China launch until Apple has formally unveiled their “gen 3” mobile devices. It should be a busy summer in Cupertino and in Beijing.

What’s going on between Apple and China Mobile?

china-mobile-iphone-3g11As for the prospects of an iPhone deal with China Mobile … A “3G” deal looks doubtful, a “2G” deal is possible, and a “4G” deal will likely remain an open topic of discussion.

I agree with part of the statement you made in your article; “Apple clearly stated that it will not include TD-SCDMA functions in its handsets, which totally ended negotiations.”

I know that Apple has not commented on TD-SCDMA and I doubt that China Mobile would ever publicly admit that TD-SCDMA 3G is a “deal breaking issue.”  However, I absolutely do believe that TD-SCDMA network concerns have been a major factor in Apple’s decision tree. More on TD-SCDMA issues later…

The public reasons (leaked to Chinese media) given for Apple and China Mobile’s failure to come to terms have been over control of the App Store and WVAS. It appears that China Mobile pushed hard in an effort convince Apple to remove services from the iPhone (no WiFi, no App Store, no iTunes, etc.) in favor of China Mobile’s own WVAS. If the press rumors are true, Apple said “No!” I don’t blame them. A “stripped down” iPhone morphs into something that Apple would not want to call “an iPhone.” It’s really that simple.

Apple cooperation talkscontinuing with China Mobile? …

China Mobile CEO, Wang Jianzhou

China Mobile CEO, Wang Jianzhou

Despite divergent views over who (Apple or China Mobile) should control WVAS on iPhone, and TD-SCDMA concerns, I am not sure that discussions have “totally ended.” According to China Mobile CEO Wang Jianzhou, Apple and China Mobile are (or were) “still talking” under a non-disclosure agreement (NDA). An interesting quote on March 5 from China Mobile CEO Wang Jianzhou: “We hope the iPhone can be used on China Mobile’s network, and Apple has demonstrated its will.”

What might be going on in these reported “talks?” I honestly have no idea. It could be something big, something small, or nothing at all. Here are a few possibilities:

  • Apple and China Mobile could be discussing an EDGE 2.5 G iPhone Nano (iPhone Nano [if it exists] might be a 2.5G model, and this might not conflict with a negotiated “3G” exclusive for China Unicom)
  • China Mobile may be discussing a future TD-LTE Phone 4G (at least 18 months down the road)

China Mobile may also be considering ways to retain existing iPhone users. China Mobile has approximately 1,000,000 iPhones now running on their EDGE 2G network. At least ½ of those are the new iPhone 3G and many of these handset owners are not on contract (290 million of China Mobile’s 463 million users are pre-paid and can freely switch carriers). If China Unicom lands the iPhone, they will no doubt attempt to entice existing iPhone 3G owners to “upgrade” to 3G.

picture-121

China Mobile going for full control of WVAS…

logopicture-9China Mobile has made no secret of their intent to build their own app store (to be called “Mobile Market”) and promote their own WVAS platform – Monternet, including music services (www.12530.com) and a Web 2.0 platform (similar to Mobile Me). China Mobile made 27% of their revenue in 2008 through their WVAS and they don’t want any leakage to handset manufacturers.

As you noted, China Mobile has already launched R&D for its own Android powered mobile operating system, jointly with cell phone producer Lenovo. The new MOS has been dubbed Ophone. With its own operation system, China Mobile can install more services of its own. China Mobile has also paid Topssion and Accenture plenty of RMB to work

Levono Ophone

Levono Ophone

on customization plans for TD-SCDMA 3G handsets and perhaps to continue feed them ideas they want to hear … “you can build your own mobile OS and app store just like Apple … and here’s how can we help” (more Accenture projects and billable hours… yes, I’m a cynic).

Nokia’s concerns offer clues as to why Apple said “No” to a customized TD iPhone 3G…

news1_01This effort to integrate TD-SCDMA handsets with China Mobile’s own mobile operating system and WVAS is an expensive and risky proposition. Nokia has apparently balked at pouring their own money into this initiative. Consequently, earlier this month, China Mobile revealed that it would invest 600 million RBM with Nokia and other handset manufacturers on research and development on TD-SCDMA handsets. Why is the most dominant wireless carrier in the world (China Mobile with 463 million subscribers) dolling out R&D money to handset producers to build TD-SCDMA phones? Especially to Nokia who has dominant market-share in China (37% of handset sales in China are Nokia) and has invested heavily in maintaining good standing with China Mobile? Serious question. Why? You’d think Nokia would be falling all over themselves to rush deliver a new TD Nokia 3G phone for China.

TD-SCDMA Handsets

TD-SCDMA Handsets

A large part of that answer may rest in the fact that China Mobile has an obligation to China’s Ministries to rollout the “indigenously innovated” TD-SCDMA 3G network. And yet China Mobile is now rushing development of TD-LTE 4G as fast (and quietly) as they can. CMCC will no doubt spend whatever amount is necessary to stabilize TD-SCDMA, but its future is far from certain. The tenuous future of TD-SCDMA may be a primary reason why Nokia will not take on further TD-SCDMA handset development without a cash stipend. A secondary reason may be the substantial WVAS customization China Mobile is insisting upon, along with the integration of China Mobile’s new “on the drawing board” Ophone. This is a terribly expensive undertaking for Nokia with no assurance that the customized (“crippled”) TD handsets will sell.

Why Apple said “No” to TD-SCDMA…

In your article, you questioned why Apple balked at an agreement to build a TD-SCDMA handset. In my mind, this was a “no brainer” decision for Apple. It’s my belief that Apple went to great lengths to give the nascent TD-SCDMA 3G protocol a trial, including dedicating engineering resources and possibly some design/build efforts. But any special TD iPhone 3G model is likely to remain under “lock-in-key” in the engineering vaults in Cupertino.

cmcc-tdscdma-logoWhy would Apple say “No” to TD-SCDMA 3G? …

  • China Mobile’s “end run” rush to build TD LTE 4G is a statement that TD-SCDMA may have a very limited life span (2 years or so).
  • TD-SCDMA is based on now “dated” Nokia Siemens technology.
  • Network usability problems continue (dropped calls and interference near tall buildings).
  • TD-SCDMA 3G iPhones would not be usable outside of China, albeit they would likely be backward compatible to 2G EDGE networks.
  • China Mobile has blamed the current crop of TD-SCDMA handsets for network usability problems. Would China Mobile reverse this “blame the phone” tactic should Apple launch a TD iPhone 3G? Not likely.
  • Apple understands very well that network bugs can tarnish the reputation of handsets.
  • Apple does not want to have their debut in China spoiled due to network reliability issues.

Despite the possible conflicts over WVAS and TD-SCDMA, it is my hope that Apple and China Mobile can find common ground and a basis to work together. A large cross-section of China wireless consumers are using China Mobile’s network and services. Whether it be a 2G iPhone Nano, or a 4G TD LTE model, it would be great to see two of the world’s most respected companies (Apple and China mobile) working together.

Thank you again for your article. I enjoyed reading it and appreciate your point of view.

Respectfully,

~ Dan Butterfield, Editor, iPhonAsia 

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iPhonAsia comment: File this under rumor and guesswork …

apple_unicom1There have been several reports that a China Unicom executive team was in Cupertino the week of March 8th to finalize an iPhone deal. A deal may soon be signed, sealed and delivered. Our best guess for timing of a formal iPhone 3G deal announcement is on or around May 17th 2009 (China Unicom’s target launch for W-CDMA 3G in 55 major cities) with an official iPhone 3G launch in Summer 2009. 

There remains a chance for an Apple iPhone Nano (EDGE 2.5G only) deal with China Mobile, but nothing solid other than “talks continue” under an NDA. The China Telecom iPhone deal rumors have abated and been replaced by rumors that China Telecom is in talks with Research in Motion for a Blackberry deal. These press rumors have been flatly denied by both China Telecom and RIM.  

NOTE: The article below paints China Unicom as the weaker of the three wireless telecom firms in China. China Unicom (#2) is actually in a solid second position to China Mobile (#1). China Telecom is the smaller (#3) player in wireless albeit with strong numbers in broadband and landline subscribers. See iPhonAsia graphic below. 

picture-121China Unicom making progress on 3G network

According to a report via hexum.com (translated from Mardarin), China Unicom is now completing a build of its W-CDMA 3G network in Zhengzhou, capital city of Henan Province. The W-CDMA network is now undergoing optimization.

hexunlognhexum.com China Unicom is scheduled to kick off W-CDMA 3G services on May 17 in 55 major Chinese cities to compete head on with China Mobile‘s TD-SCDMA and China Telecom’s CDMA2000 3G services. And the network is scheduled to be extended to 284 cities at the end of this year.

By that time, China Unicom will provide WCDMA service subscribers with 185- and 186-prefix mobile phone numbers. And for regular users of China Unicom, who use 130-, 131-, 132-, and 156-prefix numbers, will be able to switch to W-CDMA services without changing their numbers.

Competition among the three major Chinese mobile telecoms operators for the 3G market has reached a crucial point. China Telecom launched the data cards during the 2009 Conferences of NPC and CPPCC in Beijing, which claimed a download speed of 3.1Mbps. China Mobile held down the Internet access rate for 3G mobile phones to CNY 0.01 per KB, equivalent to merely one third of the previous rate.

As the weaker player among the big three, China Unicom is desperately hoping to catch up with its archrivals in the 3G era. The 3G network of China Unicom is based on the 3.5G HSUPA technologies, which enjoys a download and upload speed of 14.4Mbps and 5.76Mbps.

China Unicom requests telecoms equipment makers such as Ericsson, Huawei Technologies and ZTE to finish 3G network construction in Wuxi, Zhengzhou and Shenzhen this month, respectively. However, the network construction in Beijing and Shanghai has made less progress so far.

Huawei Technologies says that besides Zhengzhou, it will deliver 3G networks for some cities in the Pearl River Delta to China Unicom before March 15.

China Unicom is set to invest as much as CNY 10 billion in building 3G networks in the coming two years, CNY 60 billion of which will be carried out in 2009. Now it is testing WCDMA services in a string of major Chinese cities.

The long-term investment strategy of China Unicom took hold shortly after the Ministry of Industry and Information Technology issued 3G licenses on January 7 to three Chinese telecom carriers. China Unicom got the license to run W-CDMA services.

 

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Update – March 8, 2009: cindygeng_s1Interfax’s Cindy Geng is reporting that a China Unicom delegation is visiting Apple and will conduct “decisive negotiations” on March 8 (that would be now)Cindy Geng’s report is based on an internal telecom source. The source is “confident that the talks will be successful.”

iPhonAsia has picked up from several sources in China that a March ’09 Apple/China Unicom summit would take place, however, this is the first report of a specific date.  The CNFOL.com article below spells out more details on possible negotiation points (many may have already been resolved).  

One other notable item from the Interfax report – “China Unicom is now preparing to obtain the network access license for the iPhone from the Ministry of Industry and Information Technology (MIIT).  The MIIT refuses to test Wi-Fi capable handsets, consequently China Unicom has prepared versions of the iPhone both with and without Wi-Fi.” 

Meanwhile … China Mobile continues in “cooperation talks” with Apple over releasing the iPhone. China Mobile CEO Wang Jianzhou, March 5, 2008: “We hope the iPhone can be used in China Mobile’s network, and Apple has demonstrated its will.”

China Unicom to Meet with Apple over iPhone

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Here are a few key takeaways from an extensive iPhone in China article posted today in a China tech blog Computer Reporter by Tao Yuanli.

NOTE: The excerpts below have been translated from Mandarin by iPhonAsia. Apologies for less than perfect translation. The full article is available HERE in Mandarin. 

Lou Qinjian, Vice Minister MII
Lou Qinjian, Vice Minister MII

Ministry Information Industry Ministry (MII) Vice-minister Lou Qinjian confirmed that China Unicom is “engaged in clandestine iPhone in China negotiations with Apple.” Lou Qinjian 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.”   

In early February 2009, China Unicom began W-CDMA 3G network and the iPhone compatibility tests in the Hebei Province. The tests used the HSDPA network, and the downloading speed surpassed 150KBs. The Hebei Province migration network company involved in testing has given the tests a “satisfaction” evaluation. Thus it can be seen, that iPhone carries on the 3G network’s test smoothly.  

China Unicom Chairman Chang Xiaobing
China Unicom Chairman Chang Xiaobing

On September 16, 2008, China Unicom Chairman Chang Xiaobing indicated at the general meeting of shareholders that China Unicom will “pay attention to the commercial turning point which highly iPhone possibly brings, and hopes to begin a depth of cooperation with Apple”

It is also reported that Chang Xiaobing will go in person to Apple Headquarters in Cupertino to discuss cooperation matters. There are four (4) issues to resolve:

  1. The issue of a subsidy payment from China Unicom to Apple for each “on contract” iPhone.
  2. Whether Apple will agree to disable WiFi on iPhone in China. WiFi on mobile handsets does not conform to China’s WAPI standard of security
  3. Exclusivity. Whether China Unicom will have exclusive selling rights in PRC.
  4. Whether Apple will agree to pre-load iPhone with applications popular in China (e.g. Youku vs Youtube).

apple_unicomiPhonAsia comment: There have been several reports of a planned March 2009 (that would be now) visit to Cupertino by key China Unicom executives. Here’s who iPhonAsia expects might be on the guest list:

  • Gang Li
    Gang Li

    China Unicom Chairman Chang Xiaobing

  • China Unicom Executive Director Mobile Communications Gang Li 
  • China Unicom Vice President, Li Zheng Mao (another iPhone fan)
  • and Yu Yingtao, head of China Unicom’s handset management center and its procurement subsidiary Vsens.com.
Li Zheng Mao
China Unicom Vice President, Li Zheng Mao

 


 

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Government announces further support for TD-SCDMA

danwei_s1by Zhang Danwei

Shanghai. January 23. INTERFAX-CHINA –

picture-115The Ministry of Industry and Information Technology (MIIT) announced measures to bolster the development of the country’s homegrown 3G standard, TD-SCDMA, on Jan. 22.

As well as earmarking funds specifically for the development of TD-SCDMA, the government will allow companies engaged in TD-SCDMA network construction to access existing government funds for the electronics and hi-tech industries, MIIT said.

tdscdma-logoThe government will aim to favor TD-SCDMA technology over alternatives in government procurements, and will encourage the use of the standard in e-government, wireless city, rural informatization and e-business projects.

China TelecommunicationsMIIT also said that the approval process for TD-SCDMA projects will be accelerated, and that it will support TD-SCDMA network construction through measures such as ensuring good locations and power supplies for base stations. MIIT will prioritize the granting of network access licenses to TD-SCDMA handsets, and provide specialists to support TD-SCDMA terminal manufacturers.

Owners of networks that refuse to share infrastructure with the TD-SCDMA network where it is deemed necessary will face punishment, MIIT said.

In 2009, the government will draft 25 standards for the upgrade of TD-SCDMA to the 3.5G HSUPA technology, while research will be conducted into the 4G TD-LTE standard.

With the release of the 3G licenses and the new round of 3G network construction, TD-SCDMA will have to face challenges from WCDMA and CDMA2000, MIIT said. This is because, by the end of 2009, all three telecom operators will have their own 3G network with similar coverage.

According to MIIT, a total of RMB 170 billion ($24.86 billion) will be invested in 3G infrastructure construction in 2009. China Mobile will invest RMB 58.8 billion ($8.6 billion) to construct about 60,000 TD-SCDMA base stations, and will cover 238 cities with TD-SCDMA services by the year-end. China Telecom will initially invest about RMB 30 billion ($4.39 billion) to bring CDMA2000 services to 100 cities by the end of March. China Unicom will also initially invest about RMB 30 billion ($4.39 billion), with 55 cities due to have commercial WCDMA trial services in the first half of the year, and 282 cities to have full commercial WCDMA services by the year-end.

MIIT said that it expects a total of RMB 400 billion ($58.5 billion) to be invested in 3G network construction by telecom operators over the next three years and that the entire country will have 3G network coverage by the end of 2011.

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iPhonAsia comment: Here (below) is the editor’s reply to a post on AppleInsider re the Nano iPhone. Note that iPhonAsia considers the Nano iPhone to be an outside chance, albeit more evidence is coming in each day to support its existence. But we do see two (2) new iPhone deals in PRC in 2009. One with > China Mobile and the next with China Unicom.

picture-21
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Originally Posted by iVlad View Post
“But why not regular iPhone?”
Originally Posted by Pachomius View Post
“IT’S CLEAR CLEAR CLEAR!!! This is the phone that they will start selling in China. That explains everything.”

iPhonAsia reply:

This is total guesswork but …
This all begins to make more sense if you consider that the Nano iPhone 
might have been specially built for China Mobile.

There are many reasons why a “Nano” iPhone does not make sense (e.g. screen too small, at least by Western Standards) … yet there are reasons why it might fly in the Far East . Consider that this could be a low price “customized” model designed in concert with China Mobile (see >”customization” for back story re Accenture’s involvement). This model would be EDGE 2.75G and TD-SCDMA 3G ready and would support Monternet – China Mobile’s VAS platform. No iTunes, no AppStore, no WiFi. China Mobile is building their own app store and they are subsidizing all “TD ready” handsets authorized in China. Of China Mobile’s 400+ million users, approximately 290 million are pre-paid users (no contract). Many pre-paid users aspire to iPhone but cannot afford without a price incentive (China Mobile subsidy to go on contract). 

This rumored deal to build a customized TD iPhone for China Mobile flies in the face of Apple’s model for doing business with all other world carriers. In many ways it’s hard to fathom and I wouldn’t blame anyone for saying “no way!” However, this customized model may be a pre-requisite for doing business in China’s highly controlled handset market. China Mobile’s parent company CMCC is majority state owned (by China) and they need to get the new TD-SCDMA network off to a fast start. It has been a struggle thus far and cool handsets are key to user adoption. 

IMHO Apple will not do an exclusive deal with China Mobile. The next deal TBA will be with China Unicom , who will be launching their W-CDMA 3G network mid-May 2009. This will be a more standard model iPhone 3G, which already supports W-CDMA 3G.

More > HERE HERE & HERE

See also >

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