Thank goodness! That's my first and main reaction on reading that after years of negotiations, Apple (Nasdaq: AAPL) and China Mobile (HKEx: 941; NYSE: CHL) have finally announced their highly anticipated deal to sell the iPhone on the 3G and 4G networks of China's dominant telco. Of course, now the next big questions will be: How will China Mobile price the new iPhones, and how many units will it sell? Investors are clearly quite hopeful, with Apple's shares rising 3.8 percent after the deal was finally announced.
While the deal has been discussed for quite a long time now, I also agree that it will be quite significant for Apple, providing a strong boost for the company by giving it access to China Mobile's more than 700 million subscribers. Many of those, including people like myself, are still using China Mobile's 2G service, preferring to avoid its faster 3G network that is based on a problematic homegrown technology.
China Mobile has just formally launched its 4G service that is also based on a homegrown technology, but one that has undergone significantly more testing and therefore should be less problematic than its 3G service. Accordingly, many current 2G subscribers could decide to upgrade directly to 4G, and a sizable number of those could choose to do so with a plan that includes a new iPhone offered under this Apple-China Mobile deal.
Before we go further with any estimates, let's look at the actual announcement from China Mobile and Apple, which doesn't contain a lot of detail. The main bit of news is the official dates for the iPhone's launch on China Mobile's network, with online orders accepted from December 25 and actual iPhones available from January 17 (company announcement). Both the newest iPhone 5s and 5c will be available throughout under the tie-up, at both the handful of Apple stores in China and also at the thousands of China Mobile shops around the country.
This deal has been rumored for the better part of 3 years now, and the rumors have grown more frequent over the last few months as the two sides neared an agreement. China Mobile's Chairman Xi Guohua was denying that such a deal had been reached as recently as last week, though other company sources said the 2 sides were very close and just working out final details.
The deal makes China Mobile the last of China's 3 major telcos to offer the iPhone. The second largest carrier, China Unicom (HKEx: 762; NYSE: CHU), has been offering iPhones since 2010, while the smallest, China Telecom (HKEx: 728; NYSE: CHA), has been offering them for nearly 2 years now. But as many are quick to point out, China Mobile has twice as many subscribers as Unicom and China Telecom combined.
So what does all this mean for Apple and China Mobile in terms of numbers? I suspect that initially we won't see China Mobile win too many new subscribers through the deal, and instead most iPhone buyers under the arrangement will be existing China Mobile customers who want to upgrade to 4G. That would probably explain why China Mobile shares rose much less than Apple shares after the deal was announced.
One media report cites an analyst saying the new deal could see Apple sell 12 million iPhones via China Mobile next year, roughly equal to 8 percent of its total global iPhone sales for all of 2012 (English article). Another report says that China Mobile's Beijing subsidiary has already quietly begun taking iPhone orders for 2 weeks now, with 70,000 sign-ups during that time.
All of that said, I do think this new deal should get a lot of media coverage and generate lots of buzz in China, with both China Mobile and Apple devoting big resources to the roll-out. I also expect we'll see competitive pricing plans that undercut plans for the 5s and 5c from both Unicom and China Telecom. Accordingly, I wouldn't be surprised to see China Mobile sell up to 3 million iPhones at the product's launch, and for it to aggressively market the phones throughout 2014.
Bottom line: China Mobile will aggressively price and promote the iPhone under its new deal with Apple, with the company likely to log orders for up to 3 million phones at the launch next month.
Disclosure: No positions.