In a deal that is likely to spur continued growth on Apple’s books, China Mobile has entered into a multi-year deal to bring the iPhone to the world’s largest mobile network. The deal includes making available the iPhone 5s and iPhone 5c at China Mobile’s network of retail stories and Apple retail stores across mainland China on Jan. 17, 2014.
Although Apple is already selling into China, the deal with China Mobile could take sales to new heights. China Mobile serves more than 760 million customers. But some analysts warn it might not be an automatic home run.
“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,” said Tim Cook, Apple CEO. “iPhone customers in China are an enthusiastic and rapidly growing group, and we can’t think of a better way to welcome in the Chinese New Year than getting an iPhone into the hands of every China Mobile who wants one.”
Apple’s Big Boost
China Mobile has more than 1.2 million 2G/GSM, 3G/TD-SCDMA, 4G/TD-LTE base stations and over 4.2 million Wi-Fi access points, providing broad coverage to quality networks for iPhone 5s and iPhone 5c customers.
What’s more, China Mobile is rolling out the world’s largest 4G network. By the end of 2013, China Mobile’s 4G services will be available in 16 cities including Beijing, Shanghai, Guangzhou and Shenzhen. And by the end of 2014, China Mobile plans to complete the rollout of more than 500,000 4G base stations, which will cover more than 340 cities with 4G service.
Apple said the collaboration with China Mobile will give a big boost to the development of China's homegrown 4G/TD-LTE technology. iPhone on China Mobile supports major cellular network standards, making a global phone a reality for China Mobile customers.
“Apple’s iPhone is very much loved by millions of customers around the world,” said Xi Guohua, chairman of China Mobile. “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. 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.”
An Apple Spin Off?
We asked Rob Enderle, a principal analyst at The Enderle Group, for his take on the Apple-China Mobile deal. He told us the issue with China is that the average income is relatively low -- and not only are true iPhones too expensive for consumers but there is no lack of far cheaper clones in market.
“The question for Apple is do they collapse margins to get more sales or do they accept that they’ll only sell phones to a small minority,” Enderle said. “If they drop prices they collapse margins and if they make a cheaper phone they damage the premium brand perception surrounding the product placing Apple between a rock and a hard place.”
The bottom line: Apple faces a common problem for premium brands: not only are there lots of knock offs in other countries like China but Apple's business model doesn’t work in countries where the per capita income is very low except with the very wealthy. What’s the solution?
“The ideal fix would likely be to spin out a company that could release a lower cost phone that would connect to Apple services -- kind of like Apple’s Chevy compared to Cadillac,” Enderle said. “When done right, this protects the premium brand while allowing a lower cost product to enter the market more aggressively. GE does this with appliances with Monogram at the top and Hotpoint at the bottom.”