China Mobile

Subsidy war likely as iPhone finally comes to China Mobile

PUBLISHED : Saturday, 18 January, 2014, 1:29am
UPDATED : Saturday, 18 January, 2014, 1:29am

Apple's long-awaited launch of its iPhone on China Mobile's vast network yesterday opens the door to the carrier's 763 million subscribers, but doubts have been cast on the longer-term benefits for both parties.

Apple chief executive Tim Cook was on hand as the carrier's flagship store opened in Beijing's financial district. With China Mobile chairman Xi Guohua alongside, Cook gifted signed iPhones to a handful of customers.

The deal could trigger a limited turnaround for Apple, whose fortunes have wavered in China in the face of stiff competition from market-leader Samsung Electronics and up-and-coming local rival Xiaomi Tech.

Samsung had a 21 per cent share of China's smartphone market in the third quarter of last year, with Apple trailing in fifth place with just 6 per cent, according to research firm Canalys.

The arrival of the iPhone could be a double-edged sword for China Mobile, with some analysts predicting a subsidy war as rival carriers compete to lure customers.

"I don't see a price war coming where Apple is engaged in the war, but I do think you're going to see a subsidy war coming," said Michael Clendenin, managing director of Shanghai-based RedTech Advisors.

"China Mobile, if they're not making their targets on sales for these phones, they're going to increase the subsidies ... It's like airlines: the other guys will fall like dominoes, so China Unicom will do it and China Telecom will do it," Clendenin said.

China Mobile's iPhone sales are expected to reach 12 million in its 2014 fiscal year, but its subsidies will leap 57 per cent to 42.4 billion yuan (HK$54 billion), up from 27 billion yuan in fiscal 2013, wrote Cynthia Meng, a Jefferies analyst, in a December report.

For the basic 16 gigabyte iPhone 5S, with no subscriber contract, China Mobile is charging 5,288 yuan, the same as on Apple's China website.

China Unicom Hong Kong and China Telecom slashed their iPhone prices by as much as 1,288 yuan following the announcement that a deal had been struck between Apple and China Mobile.

The pair have also offered a range of cut-price deals on contracts, also timed to take advantage of the approaching Lunar New Year.

Reservations for iPhones had already hit 1.3 million on Wednesday, according to a China Mobile spokeswoman.

The rewards for Apple from the China Mobile deal could be undermined by a thriving grey market for iPhones, where users can buy handsets typically smuggled from Hong Kong and then sign up for a China Mobile contract.