China Telecom Signs Deal with RIM to Sell BlackBerry

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Includes: BB, CHA
by: Zacks Investment Research

China Telecom (NYSE:CHA), the largest Chinese fixed-line operator, has reportedly sealed an agreement with Research In Motion (RIMM) to sell BlackBerry and related services in China. This represents the first major high-end handset contract for the Chinese operator.

The company is currently conducting tests of the popular device with full commercial roll-out is not expected until early 2010. China Telecom is augmenting its mobile handset portfolio in an effort to boost its share in the domestic wireless space.

The deal was finalized after a prolonged negotiation with Research In Motion. China Telecom is reportedly planning to introduce at least three dual-mode (supporting both CDMA and GSM networks) BlackBerry models and launch two distinct monthly service plans for individual and business customers.

China Telecom commenced mobile operations in Oct 2008 through its acquisition of China Unicom’s (NYSE:CHU) CDMA wireless business for approximately RMB43.8 billion (US$6.4 billion). However, China Telecom’s CDMA operation accounts for only 7.5% of mobile phone users in China, well behind peers in terms of market penetration in this segment. The company is currently the smallest of the big three wireless carriers in China.

While China Telecom has struggled to clinch major handset contracts from overseas vendors, its two bigger rivals China Mobile (NYSE:CHL) and China Unicom have succeeded to do the same. Under a three-year deal with Apple (NASDAQ:AAPL), China Unicom is marketing iPhones (3G & 3GS) in China. China Mobile continues to expand its Android-based handset (called “Ophones”) range in collaboration with leading international vendors including Motorola (MOT) and Dell (DELL).

BlackBerry is one of the most sought after mobile handsets in the world. Currently, BlackBerry sales are growing at a healthier pace than iPhone. Worlwide BlackBerry shipments grew 37.5% year-over-year in third-quarter 2009 compared to iPhone’s mere 7% growth. BlackBerry has the second highest share (behind Nokia (NYSE:NOK)) of the global smartphone shipments at 19% followed by iPhone at 17%.

However, BlackBerry’s performance in China (currently marketed by China Mobile) so far has been lackluster. The device has accounted for less than 1% of total smartphone sales in 2008. This can be attributable to lack of new models, expensive service plans and the smartphone’s hardware configuration, which is least favored by the Chinese customers.

Chinese users prefer touchscreen smartphones over the keypad-based old BlackBerry model currently sold in China. Thus, it will be interesting to see how much response BlackBerry may generate once it lands on China Telecom’s networks. However, the carrier’s huge corporate customer base (the largest in China) coupled with the arrival of multiple new models are expected to support the device’s uptake in a country that boasts the largest mobile user base in the world.