Apple struck a long-awaited distribution deal on Sunday night with China Mobile, a partnership worth billions of dollars in extra iPhone revenues that finally opens up the largest mobile market to the world’s most valuable technology company.
The iPhone 5s and 5c, Apple’s most recent smartphones, will go on sale on January 17 in China Mobile’s retail stores for the first time. No pricing for the iPhone or release date for the iPad was announced.
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The deal had been aided by the Chinese government’s grant of 4G network licences to its three main telecoms carriers, which boost the compatibility of the iPhone with China Mobile’s networks and were finalised in early December. Shares in Apple have rallied more than 20 per cent in the past three months in anticipation.
“Apple has enormous respect for China Mobile and we are excited to begin working together,” said Tim Cook, Apple’s chief executive. “China is an extremely important market for Apple and our partnership with China Mobile presents us the opportunity to bring iPhone to the customers of the world’s largest network.”
The Chinese company had been teasing the launch of the iPhone in recent weeks, with a website run by its Beijing branch offering preorders of 4G phones.
China Mobile is the world’s largest mobile carrier with more than 750m customers – around 170m of which are on its 3G network – outstripping US carriers such as Verizon Wireless, which has about 100m connections.
A tie-up between Apple and China Mobile had previously been frustrated by the mobile carrier’s adoption, at Beijing’s behest, of a homegrown 3G standard that proved incompatible with iPhones.
The poor performance of the iPhone on China Mobile’s network drove users to smaller rivals China Unicom and China Telecom, both of which deployed an internationally compatible 3G standard.
“We are delighted that iPhone on China Mobile will support our 4G/TD-LTE and 3G/TD-SCDMA networks, providing customers with high-speed mobile service,” said Xi Guohua, China Mobile’s chairman.
While more than 60 per cent of the country’s 1.2bn mobile phone customers are China Mobile subscribers, RBC Capital Markets estimates that the company hosts only 45 per cent of China’s estimated 380m 3G users. China Mobile’s new 4G network will, however, be compatible with Apple’s latest iPhone 5c and 5s models.
Analysts at RBC Capital Markets have forecast the deal could boost Apple’s annual revenues by $10bn, while Morgan Stanley suggests that 12m extra iPhones could be sold in the current financial year.
The deal comes as Apple shows signs it has regained momentum in China after losing some market share to Samsung and local smartphone makers such as Xiaomi.
Market researchers at Counterpoint last week said the iPhone 5s, which went on sale at the end of September, lifted Apple’s market share to 12 per cent in October, from just 3 per cent in the month before, and had made the US company the third-largest player in the Chinese smartphone market. Counterpoint suggests that with the addition of China Mobile, Apple could top the smartphone market in the region in December or January.
Our partnership with China Mobile presents us the opportunity to bring iPhone to the customers of the world’s largest network
- Tim Cook, chief executive of Apple
However, some Wall Street analysts have warned that Apple investors’ expectations for the China Mobile partnership could be too high.
While some have forecast the tie-up could result in as many as 30m more iPhones being sold, Bank of America Merrill Lynch predicts fewer than 10m, given China Mobile’s “under-developed 3G network”, high pricing and the iPhone’s limited success with other Chinese carriers.
Competition with other handsets remains intense. Citi analysts estimate the iPhone will be just one of 20 new 4G phones launching on the China Mobile network in the first half of 2014, most of them selling for about $165 – far cheaper than even the lower-priced iPhone 5c.
BMO Capital Markets analysts, after a recent trip to Asia, wrote that “all three Chinese carriers suggested the 5c is a weak product, since the price is not low enough to capture new demand”.
China Mobile has said there are already more than 45m unlocked iPhones used on its networks, even though those users must make do with slower 2G and wifi connections, so some demand for the device has already been met.
While Apple investors have been waiting for years for it to start selling through China’s largest carrier, the timing of the deal may end up being helpful for the US company as it nears the end of its most profitable quarter, and ahead of the Chinese new year.
The combination of new operator partners in China and Japan, with DoCoMo, “could somewhat smooth the typically weak March and June quarters”, said UBS.
Additional reporting by Tom Mitchell in Beijing
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