Anyone who was hoping to get a big discount on an iPhone from China Mobile (HKEx: 941; NYSE: CHL) will be majorly disappointed to learn the popular smartphones will be quite pricey under the new partnership between China's leading wireless telco and Apple (Nasdaq: AAPL). The pair have just announced pricing for the iPhones under a deal reached between China Mobile and Apple in December, with the 5s starting at 5,488 yuan ($914) for the cheapest model with 16 GB of memory (English article). By comparison, a comparable U.S. model, which has been on the market since September in most of the world, costs around $650.
China Mobile's 2 main rivals have been offering the iPhone since the product's global launch last year, and last week were cutting their prices in anticipation of aggressive pricing from China Mobile. China Telecom (HKEx: 728; NYSE: CHA) was the most aggressive, offering the 5s for as little as 4,000 yuan (previous post). So perhaps this expensive pricing by China Mobile will drive more disappointed Apple fans who were hoping for heavily subsidized phones to China Telecom and the nation's other telco, China Unicom (HKEx: 762; NYSE: CHU).
China Mobile announced the new pricing plans at an event in Beijing attended by its Chairman Xi Guohua and Apple CEO Tim Cook, who was making his third trip to China since 2013, reflecting the importance of the market. Aside from the pricing, the only interesting detail to come from the event was China Mobile's disclosure that it received registrations for more than 1 million iPhones on its website by people expressing an interest in buying the phones. I suspect that many of those people may change their minds about ordering an iPhone following the announcement of the high pricing.
This decision to price the iPhones so high was probably the result of technological issues and pressure from Apple itself. Technologically speaking, the China Mobile iPhones are a unique gadget that supports a mishmash of mobile technologies, including the homegrown standards for 3G and 4G used only by China Mobile. The uniqueness of China Mobile's technological needs was one of the main obstacles that prevented the carrier from signing an Apple deal sooner, and for that reason this new batch of iPhones is almost certainly much more expensive than models that have been on sale since last year in other markets.
But I previously commented that China Mobile is a very cash rich company, and could easily afford to heavily subsidize its iPhones to quickly win subscribers for its newly launched 4G service. That leads to my second point, namely that Apple probably pressured China Mobile to keep the pricing high for these phones, as part of its strategy to maintain its premium image. Chinese users are especially image conscious, so the fact that all iPhones in China will cost at least 4,000 yuan, or more than $650, means owners can still feel like they are an elite group.
Many were previously predicting big new business for the iPhone in China following the China Mobile launch, with analysts saying the deal could boost Apple's China iPhone sales by anywhere from 13 million to 17 million units this year. That would be quite an impressive boost, representing an increase of 50 percent or more from the 23 million iPhones that Apple sold in China last year.
I suspect that many analysts may quietly reduce their iPhone forecasts for China following this China Mobile pricing announcement, and that first-month sales under the new partnership are unlikely to top the 2 million mark unless China Mobile offers better prices. At the end of the day, perhaps it's best to look at this launch as a pilot program due to the newness of the partnership and technology, and hope that we'll see the pair move more aggressively in future launches.
Bottom line: China Mobile is unlikely to sell more than 2 million iPhones in the first month of its new deal with Apple due to high pricing.
Disclosure: No positions