The timing of Apple’s deal to sell its iPhone on China’s Mobile, the world’s largest mobile carrier, is being hailed as two giants at last coming together. China Mobile, rolling out 4G services to its increasingly affluent customer base, joining forces with globally popular Apple, to help make that launch more successful. But while it is likely the beginning of a long, mutually beneficial partnership, it also represents the end of an era for Apple that again raises the question: Where to next?
Specifically, in signing on China Mobile, Apple gains access to the company’s 760 million wireless customers, a total that represents more than 10% of a worldwide total nearing 7 billion. It also means that 2013 was a big year for Apple in signing on the last two “whales” out there. While Japan’s NTT DoCoMo is far smaller, with around 62 million subscribers, it’s a more advanced mobile-data market with roughly double the smartphone penetration of China.
In short, if you look just at the slice of the market that already has or likely will add smartphones in 2014, Apple has increased its addressable customer base by more than 200 million thanks to these two deals. A forecast earlier this year predicted that 1.4 billion smartphones would be in use by year end, so the 15% of market Apple was missing is pretty important.
But 2013 almost certainly marks the last time the company will be able to find new customers by signing up giant carriers who commit to buying millions of phones in multi-year deals, as China Mobile and DoCoMo did. Nearly every major global operator now offers the iPhone. Part of the iPhone sales growth over time tracks the arc of the smartphone industry overall, but much is a function of Apple moving from exclusive deals in individual countries to non-exclusives (remember when it was an AT&T only product) and also to broader worldwide availability.
Still, even with 150 million iPhones sold in Apple’s fiscal year that ended in September, the company began to fall behind the prodigious growth of the overall smartphone market. While there is much back and forth about how important market share is, there is no doubt Apple’s has slipped internationally (falling to 12% last quarter), even while it has remained very strong domestically.
The early data out of Japan, where iPhone models dominated sales in November, suggest that Apple is poised to make strong gains in Asia heading into 2014. While you’ll often see reports suggesting the company has a single-digit market share in China, the research firm Kantar separately tracks urban China and has measured Apple consistently at 20-30% of the smartphone market since last year.
China Mobile expects its new 4G service to be up and running in 340 cities by the end of 2014, that’s a lot of “urban China” for Apple to sell into, which is why analysts are tossing around numbers like 15-30 million incremental iPhone sales thanks to this deal. The only reason those figures aren’t higher is that the iPhone will likely remain the most expensive smartphone in China. Though Apple and China Mobile were mum on pricing, China Unicom and China Telecom already sell the current models for starting prices north of $700 and it’s unlikely China Mobile’s pricing will be radically different.
Apple is building a unique model of the iPhone for China Mobile due to the carriers use of a slightly different 4G technology called TD-LTE, which does allow a bit of wiggle room. Historically, most Chinese handsets have been sold without subsidies and it’s possible that the unique models being offered could be tied back to the China Mobile network and offered with some discounting, but that’s not likely to be a material part of the strategy.
Instead, Apple is likely to reap the benefits of simply selling more pricey phones through more carriers in its current fiscal year. While China Mobile won’t help this holiday quarter, it will likely help smooth some of the seasonality that has recently seen Apple revenues fall off significantly into the new year. (The China Mobile rollout coincides with Chinese New Year, not a big time for gift giving, but the exchange of money is common. And with excitement over the iPhone, initial response is likely to be strong.)
From here, Apple is back at a crossroads. It can continue pursuing its current premium-price course, with the risk that a maturing smartphone market makes even that unsustainable. Only in the U.S. is Apple’s market share and installed base so large that there aren’t at least some risks to letting the market continue to grow faster than than the iPhone. Alternatively, it can look to either somewhat lower prices (See: “What If Apple Cut Prices $100?” or greater product proliferation (think phablets or bigger iPhones) in 2014.