Apple China and China Mobile: Successes and Obstacles

Photo: Daniel J. Groshong / Bloomberg

January 10 this year, Tim Cook, CEO of Apple, made a rather bold statement. According to him, in the future, China should become the largest market for the company's products, bypassing the United States and Europe. The leader of Apple has grounds for such statements. At present, China is the fastest growing market for this company's products. According to data for the fourth quarter of 2012, Apple's sales in China (including Hong Kong, Macau and Taiwan) reached $ 6.83 billion (a similar figure for the previous year was 4.08 billion), according to Bloomberg. Apple's sales growth in China was more than two times higher than in other regions. In such a situation, further strengthening its position in the Chinese market has become one of the priority strategies for Apple.

However, gaining a foothold in the Chinese market is not at all as easy as it seems. So, according to the results of the third quarter of 2012, Apple took only sixth place in the PRC market among smartphone companies , after Samsung (the leader of the rating), Lenovo, China Wireless Technologies, ZTE and Huawei (the last four are Chinese companies).


"Big Three" of Chinese mobile operators. All three are state-owned companies.

Currently, a significant share of Apple iPhone sales is through the retail chains of two major Chinese telecom operators: China Unicom and China Telecom. In the Chinese mobile phone market, these companies are second and third. Meanwhile, Apple does not have such agreements with the largest Chinese operator China Mobile. In addition, the fact that the iPhone devices do not support the TD-SCDMA 3G standard used by China Mobile (which is not used anywhere except China Mobile) significantly hinders the cooperation between the two companies.

(why China Mobile opted for its existing standards is a separate issue. According to one of the popular versions, this was done in order to avoid royalties)

When working on the China Mobile network, the iPhone, like other phones, can make calls, send / receive SMS, etc. without problems, however, when connecting to the Internet, the connection speed will be limited to a rather slow 2G level (GPRS or EDGE). At the same time, with the 3G standards (W-CDMA and CDMA2000 1xEV-DO, respectively) used in China Unicom and China Telecom networks, the Internet on the iPhone works without any noticeable problems. Given that the bulk of the iPhone's functions are somehow connected to the Internet, the tariffs of the last two operators are becoming much more attractive for owners of iPhones.

There is an interesting situation. On the one hand, China Mobile subscribers (and there are already about 710 million) - poorly covered segment of the market for Apple. On the other hand, users of Apple products (and there are many of them in China, if you look at the above figures) are, for their part, a poorly covered segment for China Mobile. Therefore, both parties are interested in cooperation. So, back in September , data appeared on the Internet that the new iPhone 5 has the necessary technical “makings” for working in TD-SCDMA networks.

An important issue of cooperation with Apple is for China Mobile itself, which is facing an increasingly serious onslaught from competitors. So, according to the data as of the end of December 2012, the share of China Mobile subscribers among the total number of 3G network users has fallenfrom 40.2% (data from the previous similar period) to 37.7%. China Mobile’s total market share in China has also declined.

Trying to solve this problem, the company is actively testing 4G networks. Fourth generation network experiments began in China in 2011. Hong Kong has become a pioneer, where China Mobile's 4G network is already active. As for the main part of the PRC, representatives of the Ministry of Industry and Informatization declare “good results achieved in 2012” and plan to expand work in this direction. However, the exact timing and details of the issuance of licenses for the use of 4G has not yet been published . According to an analyst at Bloomberg, for China Mobile this issue is especially important, as due to 4G the company hopes to restore and strengthen its market position (especially among smartphone users).

On January 10, Tim Cook met with Xi Guohua, chairman of the board of directors of China Mobile. The main topic of the meeting was just cooperation in the implementation of Apple products. The specific results of the negotiations are currently unknown. Very indicative is the statement made in December by the president of China Mobile, Li Yue, regarding the incompatibility of the company’s iPhone and 3G networks mentioned above. According to him, the main obstacles to compatibility are not at all in the field of technology , but (oddly enough) in the field of economics. In the end, everything “rests” on conflicts of business models and unresolved issues of profit sharing. Perhaps another factor is China Mobile’s desire to support Chinese domestic smartphone manufacturers, although this is just a guess. One way or another, the negotiations promise to be lengthy, especially considering the scale and ambitions of both companies.

Materials used were Bloomberg, South China Morning Post, The Wall Street Journal, Sina, morningwhistle.com, unwiredview.com, and Wikipedia