Apple may offer China cheaper iPhones to muscle in on mobile market

Firm is expected to offer cheaper iPhones for partnership with mainland giant

PUBLISHED : Friday, 06 September, 2013, 12:00am
UPDATED : Friday, 06 September, 2013, 11:12am

Apple is accustomed to dictating terms to carriers for its iPhone. But as it seeks a deal with China Mobile to sell the handsets, it is the network operator that is in command.

After being surpassed in the world's largest smartphone market by Samsung Electronics and five Chinese firms, Apple needs an agreement with the carrier.

The US firm is expected to introduce an updated iPhone on Tuesday, and there is rising speculation Apple will offer a low-cost handset. That would help seal a deal with China Mobile, which has 63 per cent of the mainland's 1.19 billion wireless accounts.

"In this relationship, China Mobile has all of the power," said Edward Zabitsky, the chief executive of ACI Research. "China Mobile will offer the iPhone as soon as Apple gives in on price."

The iPhone 5 ranges from 5,288 yuan (HK$6,700) to 6,888 yuan, about double the price of the K900 IdeaPhone, the flagship product of Lenovo, the No 2 seller of smartphones on the mainland after Samsung.

"Apple's unwillingness to provide meaningful concessions and China Mobile's unwillingness to subsidise a high-cost device have inhibited a deal until now," said John Bright, an analyst at Avondale Partners. "A lower-cost iPhone, financially accessible to a greater proportion of China Mobile's customer base, could be a middle ground."

Apple might also be forced to concede App Store revenue to reach an agreement, HSBC analyst Tucker Grinnan said.

"China Mobile certainly believes they should be able to get a part of the content pie," Grinnan said. "Apple is going to have to be a bit more flexible on how they approach that."

The shift marks a stark change from two years ago, when Apple released the iPhone 4 on the mainland. The device was incompatible with China Mobile's 3G network, which uses a home-grown technology standard. To avoid losing its best customers to China Unicom, Apple's original iPhone partner in the country, China Mobile gave gift cards valued at as much as US$441 to iPhone users.

Talks between the two sides have carried on for years. China Mobile's chairman, Wang Jianzhou, said in 2011 Apple would supply an iPhone once the carrier introduced 4G service. China Mobile is conducting 4G trials. Since Wang's retirement last year, the management has taken a harder line towards Apple.