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  • Nov 25, 2014
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New iPhone, 4G technology may mean Apple, China Mobile tie-up closer

PUBLISHED : Thursday, 15 August, 2013, 8:57am
UPDATED : Thursday, 15 August, 2013, 8:57am

The stars may finally be aligning for a long-awaited deal between Apple and China Mobile, the world’s biggest mobile carrier, that could help the iPhone maker claw back lost ground in its most important growth market.

Apple is expected to unveil its redesigned iPhone next month and may also release a cheaper, emerging market smartphone.

Crucially, it also now has Qualcomm chips that can operate even on China’s obscure networks. At the same time, Beijing is expected to grant 4G licences by the year-end that favour the biggest of its domestic mobile operators.

Apple has so far ducked a deal with China Mobile as this would have required a redesign inside the iPhone to work on the operator’s inferior TD-SCDMA 3G technology. For its part, China Mobile has been reluctant to commit to the huge cost of marketing and subsidising sales of the expensive iPhone.

By offering a mid-market Apple smartphone, China Mobile, which has 740 million users, could draw in more sophisticated, data-crunching subscribers to grow net profit that last year was only 15 per cent higher than in 2008, when Apple opened its first store in China.

While the 4G licences are expected to be based on TD-LTE technology, rather than the more widely-used FDD-LTE, the new Qualcomm chips can handle both systems, saving Apple from a major re-design just for the Chinese market, albeit the world’s largest.

“The circumstances and the issues that were a hindrance in the past seem to be getting resolved. So I think there’s a higher probability that potentially there’s something in the works,” said Anand Ramachandran, a telecoms analyst at Barclays in Singapore.

Apple chief executive Tim Cook met China Mobile Chairman Xi Guohua in Beijing last month, his second China visit this year, prompting speculation that a deal could be edging closer. Apple and China’s carriers do not comment on the commercial details of their contracts and talks.

Apple may be keener now to partner with China Mobile as its sales in Greater China, its second biggest market, slumped 43 per cent in April-June from the previous quarter, under pressure from mid-tier domestic suppliers such as Lenovo Group, ZTE, Huawei Technologies and Xiaomi Technology. The California-based firm’s China smartphone market share has almost halved since last year to below 5 per cent, according to industry researcher Canalys - well behind market leader Samsung Electronics.

The smaller China Unicom, which signed up with Apple in 2009, has seen annual net profits slide, largely due to the high cost of subsidising iPhone sales - but more recently its growth has outstripped its rivals as it trims subsidies this year having already established its high-end user base. January-June net profit jumped 55 per cent to 5.3 billion yuan (HK$6.7 billion).

Third-ranked China Telecom Corp entered a deal with Apple last year and, like Unicom, has seen net profit fall in recent quarters due to rising handset subsidies, though it expects profitability to improve in the long term. China Unicom and Telecom do not detail handset subsidies for iPhones.

Later on Thursday, China Mobile is expected to say its April-June net profit slipped to 34.1 billion yuan (US$5.5 billion), according to a Reuters poll of eight analysts, from 34.4 billion yuan a year ago.

“Unicom has the fastest earnings momentum,” said Vincent Lam, managing director of VL Asset Management Ltd, who invested in China Unicom, but not China Mobile. “It will depend on how iPhones fare in China from now on. My feeling is the iPhone may be losing popularity to some Android phones, so even if China Mobile gets an Apple deal, we will have to see how positive the impact is.”

China’s smartphone shipments are forecast to increase to more than 460 million by 2017, worth nearly US$120 billion, from an expected 330 million, worth US$80 billion, this year, according to research firm IDC.

“Tim Cook says he expects China to be the largest market for Apple after the US, but I don’t see how that can happen if you don’t have the largest operator as your partner,” said Barclays’ Ramachandran.

China Mobile shares, valued at around US$220 billion - half of Apple’s market worth - have fallen 7 per cent this year, compared with declines of 8 per cent at China Telecom and 3 per cent at China Unicom. The broader Hang Seng Index is down 0.5 per cent.

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