Apple, which has been negotiating with the world’s largest mobile carrier for years, finally talked its way to a deal, saying yesterday it has inked a multi-year deal with China Mobile to start selling the iPhone 5s and iPhone 5s on Jan. 17 across mainland China.
Terms weren’t disclosed, and the two companies said pricing will be announced later. Customers can pre-order the phones from China Mobile’s official website (www.10086.cn) and customer service hotline “10086″ beginning Dec. 25. Apple will also offer iPhone for China Mobile at its retail stores.
“China is an extremely important market for Apple,” Apple CEO Tim Cook said in a statement. “Our partnership with China Mobile presents us the opportunity to bring iPhone to the customers of the world’s largest network.”
Greater China (which Apple defines as China, Hong Kong and Taiwan) has been Apple’s fastest-growing market and now accounts for about 15 percent of sales, up from single-digits just a few years ago. It’s the third top region for sales after the U.S. And Europe. While Apple already has distribution deals with China’s other top carriers — China Telecom and China Unicom — China Mobile, with more than 760 million subscribers, including about 176 million users on its high-speed 3G network, is the big catch.
The challenge is convincing those buyers to pay up for the iPhone, which is deemed expensive compared to rival offerings. Samsung, enjoying worldwide demand for its Galaxy phones, leads the world in smartphone sales and is the largest smartphone provider in China, with a 21 percent market share in the third quarter, according to research firm Canalys. Apple had a 6 percent share, and ranks fifth in China behind Samsung and local suppliers Lenovo, Yulong and Huawei, Canalys says.
“With this deal, we’ll finally find out how far Apple can get in China without offering products that match the prices of Samsung, Huawei, or Xiaomi,” said Forrester analyst Frank Gillett. “The result will be similar to Apple’s success elsewhere: The iPhone will do very well among influential and valuable customers and even a broader audience, but the iPhone won’t gain dominant share.”
Gene Munster of Piper Jaffray believes China Mobile could sell 17 million iPhones in 2014, assuming an average selling price of $525 in China versus $575 in the rest of the world. Toni Sacconaghi of Sanford C. Bernstein put the number at about 15 million earlier this month; that translates into a potential $9 billion in added revenue for Apple and $3 in extra earnings per share in the first year of the deal.
“The iPhone made up 6 percent of total smartphone sales in China in the third quaeter of 20113. While it’s not completely apples to apples, we note that the 17 million unit sales estimate would represent about 2 percent of China Mobile’s total subscriber base or 10 percent of the 3G subscribe base,” Munster said yesterday. “In terms of the mechanics of the 17 million units, it is likely that there would be a proportionately larger chunk of devices sold in the first month or two of the device’s availability. We also note that if Apple updates the iPhone in the fall, China Mobile would likely get both the new device in addition to the typical pricing changes to existing devices, which could put the iPhone 5C at a more attractive mid-end price.”
“Apple’s iPhone is very much loved by millions of customers around the world,” Xi Guohua said in a statement. “We know there are many China Mobile customers and potential new customers who are anxiously awaiting the incredible combination of iPhone on China Mobile’s leading network.”
The iPhone, he said, will work on China Mobile’s new 4G/TD-LTE, announced last week, and its 3G/TD-SCDMA networks. According to a joint statement by the cmpanies, China Mobile’s 4G network will be available in 16 cities including Beijing, Shanghai, Guangzhou and Shenzhen by the end of this year. By the end of 2014, China Mobile expects to provide 4G service to more than 340 cities. “The collaboration between Apple and China Mobile will give a big boost to the development of China’s homegrown 4G/TD-LTE technology,” the companies said. “iPhone on China Mobile supports major cellular network standards, making a global phone a reality for China Mobile customers.”