Are China Mobile And Apple Close To A Deal?

Includes: AAPL, CHL
by: Emerging Money

By Richard Rittorno

Is Apple (NASDAQ:AAPL) finally positioning itself to align with the world's largest cellular mobile carrier, otherwise known as China Mobile (NYSE:CHL)? As many Apple followers know, Apple CEO Tim Cook made a trip to China last month to meet with Xi Guohua, chairman of China Mobile. To say the least, the trip to China -- Cook's second of the year -- set off a speculative firestorm regarding a possible deal between the two companies.

In the past, Apple and China Mobile have resisted making a deal because the iPhone would need to undergo a redesign in order to work on China Mobile's TD-SCDMA 3G technology. And China Mobile has been reluctant to market such an expensive phone. Has this changed?

The buzz is that Apple will be releasing the next evolution of the iPhone and possibly a cheaper version for emerging markets. Speculation is for a redesign in the internal hardware to contain the critical chips from Qualcomm (NASDAQ:QCOM) that will allow the phone to run not only on China Mobile's mainstream network, but also on many of the obscure networks within China.

Also, added into the mix is the fact that that Beijing officials are expected to release 4G licenses favoring the larger operators by the end of 2013. But here's the catch: The 4G licenses are expected to be for TD-LTE technology and the more commonly used FDD-LTE technology. However, this should not cause a problem if Apple is indeed using Qualcomm chips. The Qualcomm technology can handle both types of networks. This would mean Apple only needs to have one design for the next generation, making it easier to sign a deal with China Mobile.

If Apple is taking this road and makes a deal with China Mobile, along with a cheaper phone for the emerging markets, Apple would gain access to China Mobile's 710 million customers (as of Dec. 31, 2012).