Apple needs China Mobile more than China Mobile needs Apple

Apple needs China Mobile more than China Mobile needs Apple

Apple's smartphone marketshare in the burgeoning Chinese market is dropping precipitously, and to bolster its position the company needs to strike a deal with China's largest carrier, China Mobile. The only problem is that Apple needs China Mobile a lot more than China Mobile needs Apple, according to Bloomberg:

"In this relationship, China Mobile has all of the power," said Edward Zabitsky, chief executive officer of Toronto-based ACI Research. "China Mobile will offer the iPhone as soon as Apple gives in on price."

That compromise may be coming next week when Apple stages a special event in Cupertino. The company is widely expected to introduce both a new iPhone 5s and an iPhone 5c, which may be priced lower than the flagship iPhone.

China Mobile has 63 percent marketshare in a country of more than a billion wireless accounts. Despite that, Apple and China Mobile have yet to strike a deal. Analysts suggest that the issue is subsidization and what China Mobile CEO Li Yue calls "benefit sharing." China Mobile is apparently looking for App Store revenue concessions from Apple.

Apple is expected to have a press conference in China on September 11th within a few hours of Apple's event in Cupertino on September 10th. (China is on the other side of the international date line from the United States.) It's unknown what Apple will reveal at the Chinese event besides the expected new iPhone models.

China Mobile doesn't want to lose iPhone sales to rival China Unicom: When Apple released the iPhone 4 in China, China Mobile offered gift cards to iPhone users to keep them from switching to China Unicom. But two years is a long time in the mobile handset market. Apple's been outpaced by Samsung and five Chinese handset makers, who are building products more in line with more Chinese consumers' wallets, and now Apple finds itself in the unfamiliar position of having to make up lost ground. China is way too big - and way too lucrative - a market for Apple to leave to competitors.

Source: Bloomberg

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Peter Cohen

Mac Managing Editor of iMore and weekend Apple Product Professional at a local independent Apple reseller. Follow him on Twitter @flargh

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Reader comments

Apple needs China Mobile more than China Mobile needs Apple


I hope they don't have to give too much. Once you give in one place, you end up weakening your position in other places as well. I really can't stand the idea of them sharing app store revenue. Wow, we think we get screwed by carriers in the USA, I wonder how the Chinese fare?

Why is it that Apple should cave? Getting 0% of no deal is better than getting 100% of a bad deal. Apple has yet to truly penetrate the carrier they currently sell to in China - China Unicom. Unicom has about as many subscribers as AT&T and Verizon combined and Apple has been selling a handset that's out of the price range for most of their customers. The 5C could do for them what opening sales to Verizon did a few years back. If I were Apple continue to talk with China Mobile but would not sign a deal until it's for the terms that Apple signs with all other carriers and let Unicom put the pressure on for me.

Peter, this was poorly written, and not worthy of your skills. The iMore article intimates that Apple has the weak hand here. The Bloomberg article, which is all speculation and not a sourced rumor, certainly tries to do the same thing by quoting several analysts saying that Apple has the weak hand. All the analysts are using their typical stock market analyst speak.

But if you read far enough, you see this:

"To avoid losing its best customers to China Unicom (Hong Kong) Ltd. (762), Apple’s original iPhone partner in the country, China Mobile gave gift cards valued at as much as $441 to iPhone users and built a Wi-Fi network so they could surf the Web while making voice calls on the carrier’s older 2G network."
"The carrier must hold the line on iPhone subsidies as costs to attract users to its 3G service and to build out the new 4G network have the carrier on pace to report its first annual decline in net income since 1999. China Mobile is down 5.9 percent this year, compared with a 0.3 percent drop in the benchmark Hang Seng Index.

Subsidies on 3G handsets hit 14.2 billion yuan in the first half of this year, China Mobile said last month. The carrier’s capital spending will rise 49 percent to 190 billion yuan this year to support 4G, the company said in March. As a result, net income is projected to drop 1 percent to 128 billion yuan this year, the average of 23 analyst estimates in a survey by Bloomberg."

So, China Mobile is on pace to report its first annual decline in profits in 14 years. A $441 gift card to get iPhone users when China Unicom started offering iPhones? $450 is the subsidy Apple is asking for. A WiFi network to attack iPhone users? That sounds expensive. It's quite two-faced for the quoted analysts to say Apple has to compromise due to its weaker position while at the same time they are saying China Mobile is slowing down. They are talking from the perspective of China Mobile here.

If I'm Apple, and I see that China Mobile is set to report its first profit decline, I'm putting all the marketing resources behind China Unicom to make China Mobile hurt even more.

This doesn't make any sense for me.

A slice of the App Store revenue wouldn't net the ISPs that much money in the first place, it's kinda silly to ask for this. First of all, Apple gave $10B+ overall to the developers, and that's the combined profits from the last few years, not annually.

Not to mention, China tend to be a hot area of piracy, so the App Store revenue in China would be much smaller than usual.

China Mobile would get more from discounts on the products than a piece of the pie, get the money from the customers over a long period of time.

Zabitsky has infamously been wrong about Apple so often that I'm surprised Peter chose to quote him of all the so-called analysts. I can't imagine he's forgotten Ed after excoriating him on Angry Mac Bastards many times over the years.

Apple will "cave" to CM's demand for a lower-priced iPhone that runs on their network because the timing and technology is ripe for such a device. There's zero chance Apple will share app store revenue.

Probably why Apple MIGHT launch the 5c...
Cheap iPhone, yet to be seen. Might not even happen.
But you are soooooo right. Kudos +1

Fricking Bloomberg. The name says it all.
I never read a darn thing they right.
China needs.
I want to know when the United States starting sucking China's dick?
Oh yeah when WE borrowed 10s of Gazillions of $ from them because we have a dysfunctional Gov.
Apple has more money then the US.
As the saying goes, the market will bear. And this is another topic where those that don't know dick about economics, Samsung or Apple will chime in with their arm chair analysis of China.

The market will bear, and frankly, I am sure there are two china men sitting in a rice paddy arguing over whether the iPhone is better or Android...

There are probably a bazillion Apple fans in China, and China mobile has to get them.
Apple knows that. Not too mention, China mobile wants those folks for the bottom line.

Apple isn't going to cut any deal that isn't going to be good for Apple.

Like Tim is sitting at a table with Chim Lee Goo. Goo is saying you give us the iPhone or else...

And Apple never would tell Doomberg a damn thing. They can't keep their pie holes shut.
I will take the leak pictures and stories from no name no bodies before I would every trust, read, or wipe my ass with doomberg.

While other smartphones are branded by carriers, have bloatware installed and updates that take forever Apple has been able to avoid all of that because of their strong stance. So I don't see them bowing to any negotiation where they are not getting a huge benefit from it.

It's best not to reprint Bloomberg articles. At best, they have no journalistic integrity. Basically, they troll and thus should be ignored. Sad thing is they move stock prices. At worst, they are market manipulators acting on behalf of clients.