Looming iPhone Price War In China To Boost Apple

| About: Apple Inc. (AAPL)
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Chinese media are buzzing with anticipation as dominant mobile carrier China Mobile (NYSE:CHL) prepares to finally offer the latest iPhones for its network next week, after becoming the last of the country's three telcos to sign a deal with Apple (NASDAQ:AAPL). The move will almost certainly provide a nice boost for China Mobile's newly launched 4G service, and I expect we could see up to 2-3 million iPhones sold over the next two weeks in the run-up to the gift-giving Lunar New Year late this month. But the real beneficiary of the deal will be Apple itself, which could see its iPhone sales boom as China's 2 other telcos offer their own attractive new iPhone promotions.

Apple would probably rather forget the year 2013 in China as it faced a number of challenges that resulted in widespread negative publicity that lowered its status among image-conscious Chinese consumers. At the same time, domestic Chinese smartphone makers unleashed a flood of cheap products into the market, giving consumers a wide range of alternatives that cost far less than the premium prices for iPhones.

Apple did notch one major milestone in China last year, when it formally included the country in a global launch for the first time with the iPhone 5s and 5c. But even that launch failed to attract much buzz. That was partly due to all the earlier negative publicity, but also because the phone was only available to the one-third of Chinese mobile subscribers who get their service from the country's 2 smaller telcos, China Unicom (NYSE:CHU) and China Telecom (NYSE:CHA).

China Mobile's launch next Friday of the iPhone 5s and 5c is slightly anticlimactic, since both models have been available from Unicom and China Telecom since the products' global launch in September. Still, China Mobile's base of more than 750 million subscribers will offer a huge new pool of potential buyers for Apple, whose iPhones have been available for pre-order on China Mobile's website since last month.

Now media are reporting that both China Telecom and Unicom have cut the prices on their own iPhone packages in what looks like the start of price war that could result in a sales bonanza for Apple. (Chinese article) According to the reports, China Telecom is offering the most aggressive cuts, reducing the cost of its iPhone packages by as much as 24 percent. Unicom has reduced its packages by up to 15 percent, the reports say.

China Mobile has yet to announce the pricing for its plans, which seems a bit strange since it is now accepting pre-orders. But media are saying the Unicom and China Telecom moves are preemptive, aimed at preventing their own high-end users from defecting after China Mobile announces what many expect to be aggressive iPhone pricing plans with its formal launch next Friday.

So, what do I see ahead for the iPhone in China? As I've said above, I do think it will be difficult for Apple to achieve the level of buzz for the China Mobile iPhone launch since the phones have already been available in the country for more than three months. But the cash-rich China Mobile can afford to offer very aggressive prices for its iPhone plans, potentially making the 5s and 5c competitive with some higher end domestically produced models.

Of course we'll have to wait and see how exactly China Mobile prices its iPhones a week from now. But if it does offer aggressive prices, which seems likely, then Unicom and China Telecom could be forced to further reduce their own latest packages. That could kick off a round of high-profile price wars, which would benefit both consumers and Apple.

Bottom line: China Mobile is likely to offer very aggressive pricing for its iPhone launch next week, sparking a round of price wars that will benefit Apple.