Is Apple Throwing Away 500 million iPhone Subscribers?

There's an interesting article featured on Wired right now that puts some hard numbers up against a question many of us have been asking since Apple broke down talks with China Mobile late in 2007. That question, is simply, what the #$%! was Apple thinking? China Mobile is not only the largest wireless communications provider in China, it is the largest wireless communications provider in the world.

chinese flag

Wired's article offers up some interesting statistics, a few of which are:

  • China Mobile, as 2007 closed, had 332.38 million subscribers
  • despite the enormity of that number, it is growing at a rate of 1.47 per month and 18+ percent per year
  • in December alone, China Mobile added 5 million subscribers, compared to 2.7 million for all of Q4 for AT&T in the US

Reports indicate that the talks likely broke down due to Apple's demand for a 20-30 percent revenue share in it's dealing with China Mobile. This is not unlike the deal that Apple has demanded with other service providers in the US and Europe.

So, is Apple crazed and blind to the blunder it is making with China Mobile, or will the Cupertino PC giant emerge unscathed from their stubborn position? The other possibility is that it is China Mobile who will be filled with regret, should Apple strike a deal with China Unicom, providing a large boost to Mobile's #1 competitor.

Clearly, it is hard to tell. WGA Asia financial analyst David Wolf suggests that perhaps "[both] parties walked away from the table because they don't really need each other to succeed."

There are rumors that Apple is now pitching the iPhone to China Unicom, China Mobile's closest competitor, however these rumors are unconfirmed and there is no indication whether Apple has softened on its revenue sharing demands.

[via Wired, Seeking Alpha]

Comments

Apple will make their 10 million iPhones in 2008 sans launch in China. Apple is working with Singapore Telecommunications (SingTel) on a Pacific Rim launch - seven carrier deal in as many countries. 
http://idannyb.wordpress.com/2008/01/23/singtel-to-bring-iphone-to-pacific-rim/

Then there's Japan wherein Apple may partner with NTT DoCoMo. Let's not forget about Italy, Spain and Switzerland (rumored launch in Feb but I say later this summer).

Apple will get around to China, India and Taiwan (after PRC) ... but these nations will come later in 2008 or 2009. Why the delay in China? Apple is well aware of major changes in the works within China's telecommunications industry that will complicate any current "iPhone in China" plans. 


1. TD-SCDMA's (China's home-grown 3G) future is in doubt and building TD-SCDMA support into the next gen iPhone chipset is a risky proposition.

2. China Telecom will likely acquire China Unicom's mobile business (soon) and obtain a 3G license so that Telecom/Unicom can compete aggressively in mobile.

3. Telecom is fighting for the rights to build out W-CDMA 3G ... and Telecom may win. This is important as W-CDMA is an established 3G protocol and the next gen iPhone will absolutely support this standard.

I am optimistic about the China market for Apple. I believe Apple can sell as many as 16 million iPhones in China within 18 months from their official China launch date.
http://idannyb.wordpress.com/2008/02/01/rumor-china’s-td-scdma-3g-may-not-be-long-for-this-world/

Full back story here -
http://idannyb.wordpress.com/2008/01/11/3/

"Press gets spun by China Mobile"
http://idannyb.wordpress.com/2008/01/18/press-gets-spun-by-china-mobile/

Excerpt: In my opinion, Rainie Lei’s (China Mobile spokeswoman) January 14, 2008 statement was a bit too conveniently timed. Ask yourself this basic question - Why has China Mobile seen fit to deliver this “talks ended” statement to the press again? And why go public on the first day of the MacWorld Conference when the world’s media would be focusing on Apple? Apple is not talking publicly about China negotiations and they have never made any proclamation that a “deal is in the works” with China Mobile. So (China Mobile) why go public? And why now? Could it be that China Mobile knows that a “talks ended” statement to the press will put pressure on Apple to rejoin or begin serious discussions? Or are there other “behind the scenes” players who persuaded China Mobile to make statements to the press? With the stakes so high, there are many motivations to stir up Apple FUD (Fear Uncertainty and Doubt) and MacWorld would be the perfect time. Here come the black helicopters carrying FUDsters all the way from Grand Cayman Island, Rockefeller Plaza NYC, Ontario Canada and Espoo Finland.

There is clearly more to the “China discussions” story than Steve Jobs was prepared to share on Tuesday. However, it boggles the mind how so many journalists, bloggers, and pundits can run with China Mobile PR spin with little or no fact-checking. End result … the press gets spun and they got it wrong!

If you have ever done business with the Chinese you would not be so irate with Apple. For one thing, they tend to offer you incredibly stupid deals economically. For instance MicroSoft did a deal to provide Windows and Office for 3.00 because that is all they were willing to pay. So it's cheaper for a Chinese student to use MS software then for an American student even when you take into account the higher wages over here. Great, we make it easier for their students to gain an advantage while the American public education system is in shambles. And of course if you don't sell to them they have the option of pirating or reverse engineering your product. Copyright enforcement is not the strong suit over there although because of the low price of windows/office they have been doing better on this product.

So if Steve Jobs wants to give away the iPhone in the hopes that China Mobile carriers= will give some value back in return I suppose its not a bad deal.

Also there are certain Human Rights issues at play and many consider China to be a suppressive regime. Some companies refuse to do business with China for this very reason. I have done business with the Chinese before and it is ruthless.

So I can understand why it might not work out for some. Suggest you read some books on China and what it's really like to do business there before you slap Apple for not doing a contract with a Chinese company.

If nothing else look at the trade deficit with China, the highest in the world BTW. American's buy more of their goods because they have cheap labor (Why is another topic) and don't have real tough restrictions on manufacturing like we do over here. A big part of this is the deals are so unfavorable to US companies that want to sell over there. On top of that the dollar is getting weaker which does not help at all. Just wait, 10 years from now you will see what I'm talking about in terms of how much control China has over the world's product distribution.

Microsoft, Yahoo, and Google have all come under scrutiny recently for their cooperation with China censorship. Read why before you slap Apple too hard. There are other issues at play here.