Apple's Chinese iPhone Torture

“We will enter Asia with the iPhone in 2008… we will one day enter China, we’re not saying when.” Apple COO Time Cook said that back in March of 2008, and it’s a good thing he declined to offer a more specific timeline. Because here we are nearly a year later and Apple (AAPL) still hasn’t managed to ink an iPhone deal with China’s largest mobile carrier, China Mobile (CHL).

The companies have so far gone through three rounds of negotiations in the last 18 months, each one ending without a deal being reached. Talks have variously collapsed over both Apple’s iPhone revenue sharing plan and its subsidized plan, as well as issues of hardware localization.

Now Interfax China claims there’s a new point of contention that’s hamstrung discussions: Apple’s App Store. Seems China Mobile doesn’t much care for the idea of Apple selling applications directly to its customers. Company CEO Wang Jianzhou fears that to do so might undermine its dominance of China’s mobile Internet industry and, perhaps more importantly, muck up China Mobile’s plans for an application store of its own. Said an Interfax China source, “Wang said China Mobile should operate the application store itself in order to maintain its advantage.”

And so the two companies will presumably continue to go round and round for the forseeable future. Unless, of course, Apple wises up and finds a more amenable carrier partner in China Unicom or China Telecom.

Original post

Comments

[Sinoman:]

This is China we are talking about, and an agreement is irrelevant, as you can buy iPhones all over China today, so who needs an agreement anyway.. . .

Feb 10 08:08 AM

[PhreddyPhert:]

Sure can... about a year ago they were 3,300 RMB ... I bought an unlocked iPhone for 5,100 RMB about 6 months ago... now I've seen them in Apple stores for 5,900. No plan needed... just remember if you buy an unlocked one, DON'T upgrade the software thru iTunes... if you do that, it will RElock yer phone and your'll probably have to pay 300 to 800 RMB to get it unlocked again. I live in Guangzhou... and you can get them in LOTS of shops...

Feb 10 09:07 AM

[Feng:]

Apple has completely mis-gudged the situation in China.

1) They missed the boat in a big way. Even if they sell iPhone at the un-subsidized prcie, say $700, iPhone would still be a big sell in China if they launched it early, possibly bigger than in the US. Yes Chinese consumers are on average much poorer, but the urban people have decent income. More importantly, average Chinese consumer are much more trend conscious than US consumers, it's very common for them to spend a month's salary on a phone. That's what I did when I was a graduate student in China 8 years ago. Now I live in the US, I don't even want to spend 1/10 of my salary on any new cell phone. A key difference is peer pressure.

2) They hold no card in negotiation with China Mobile. China Mobie has such a strong market position, why would they want to give Apple money just to get their users to use this phone? And anyway user can buy the unlocked phone in China as the other comments reveals. Additionally, consumers in China are not used to have a subscription plan.

My suggestion to Apple: stop negotiation with any carriers in China, just start sell your iPhone in China directly. You've missed the boat this time because iPhone is not as hot as it was 2 years ago. But next time, when you come up with new things. Set the price 2X what an unsubsidized price would be in the US in China. It will sell.

Feb 10 10:56 AM

[brewer:]

I think Apple merely doesn't want to go 'the Micosoft route' (aka desperation) of giving away their products just to get them into China.

If the Chinese want the iPhone (clearly many of them have them already, so this is a bit of a moot question) they will have to pay for it.

Feb 10 11:24 AM

[brewer:]

@ Feng:

Actually, the iPhone is much hotter now than it was 2 years ago.

Feb 10 11:26 AM

[Kirk Kirkpa...:]

@brewer

You missed Feng's point. The iPhone will sell in China because it is cool. IN CHINA. Feng was saying that the iPhone was cooler (hotter) IN CHINA two years ago than it is now. I agree.

Feb 10 02:20 PM

[Macman11:]

As an expat and mac user (for over 23 years!) I have an iPhone here in Shanghai, have had it over a year.
I have no contract (like most people) but just credit money when I need it, easy to do from any corner shop or street vendor.
I use the App store to download or but things I want to add, I just don't upgrade the phone via the App store... (because it will be locked again!)
Whenever a new iphone s/w version is released, I get my phone upgraded/unlocked from any of the various electronics shopping centres here, so far 100rmb each time!
Apple is missing the point, if they can't get a deal signed, give up... just push the phones and mac products through legitimate stores throughout china and they WILL make money, people still want their products, including the iPhone and ARE buying them!
See the iPhones at an appropriate market cost here, offer a guarantee and people will buy them, use them and no doubt use the App store too...
If people can get them unlocked (and they can!) then that control is gone, whether Apple like it or not, so concentrate on shifting units, selling products and expand into China legitimately.

Feb 11 12:37 AM

[Paul Martin:]

Feng,

you make some very good points here, however this last piece I can only disagree with. Apple; IMO, will find themselves shut out of the Chinese market if they try & circumvent China Mobile.

China Mobile may well make a deal with either Google for Android & Chinese manufacturer or go with Nokia, as they have an existing long cherished relationship.


> My suggestion to Apple: stop negotiation with any carriers in China,
> just start sell your iPhone in China directly. You've missed the
> boat this time because iPhone is not as hot as it was 2 years ago.
> But next time, when you come up with new things. Set the price 2X
> what an unsubsidized price would be in the US in China. It will sell.

Feb 11 03:20 AM

[Feng:]

Paul,

You raised a great point, I agree it's important for any phone manufactuerer to maintain a good relationship with China Mobile. However, I would argue Apple's approach looks even more stupid from that perspective. Because you give CHL incentive to build good relationship, yet Apple is trying to get CHL to pay them.

Whoever is in charge of Apple's China strategy should be fired immediately, if not 1 year ago. This guy clearly had no understanding of the Chinese market and consumer behavior at all. I want to reemphasize my belief that had Apple launched the iPhone simulaneously in China and US (full price in China, say $700 and subsidized price in the US), Apple was very likely to achieve bigger sales (in terms units shipped) in China than in US. Because Chinese consumers are so much more trendy than the average US consumers and they do love iPhone. Now it's too late because the unlocked phones has already flooded the market at a price of roughly $600 for the 8G version.

I used my own experience to illustrate the point that Chinese consumer are willing to pay a much large % of their income on trendy cell phones in my previous post. Another example, a friend of my sister is asking my to buy a Sony Erisccon X1 phone for her. The phone cost $720 here and is still not available in China. $720 is close to her salary for 1/2 to 1 month. This is not uncommon for Chinese consumers. Of course, I have not done thorough research to support my point that Apple will sell very well at unsubsidized price, but it's very clear to me Apple has missed the key point completely.

As an iPhone lover (love my wife's iPhone much more than my BB to the extent I placed a pair trade on AAPL and RIMM last month, :P) and shareholder, I sincerely hope Apple learn from this mistake.

Feb 11 10:22 AM