The deal between Apple and China Mobile has been a long time coming, with lots of folks disappointed it didn’t happen in September when the latest iPhones were announced. China Mobile is the world’s largest mobile phone operator, with 760 million subscribers. That’s more than 1 in 7 of all people alive, and, as my friend Charlie has reminded me, more than 6 times the number of the largest US carrier, Verizon Wireless, or 3 times the size of AT&T and Verizon combined.
Though Bryan Wang in our Beijing office points out that Apple’s iPhone offerings are very expensive by China standards, starting at about $740 unsubsidized, he also reports that there is lots of interest among China Mobile subscribers. With this deal, we’ll finally find out how far Apple can get in China without offering products that match the prices of market leaders Samsung, Lenovo, and Huawei, or innovator Xiaomi. Based on Forrester survey data, we estimate that Apple sold over 16.8 million iPhones in mainland China in the four quarters ending September, 2013. We estimate that Apple will be able to sell 17 million new iPhones to China Mobile users in the first 12 months – that’s on the low side of public estimates we’ve seen ranging from 15 to 30 million. So Apple will boost global iPhone sales – and iPhone revenues – by over 10%.
After waiting so long, why is China Mobile interested in the iPhone? Because they’re concerned about losing their best customers, which are some of China's most valuable ones, to China Telecom and China Unicom. And China Mobile is just launching the first 4G network in China, and Forrester believes it will have at least a 6 month head start before other operators begin adding 4G. The iPhone 5s and 5c give China Mobile showcase products to show off the power of their 4G network.
Alas: It has finally happened. Vodafone has sold its 45% stake in Verizon Wireless to Verizon for $130 billion in a part cash ($58.9 billion) and part equity deal. The deal values the 45% stake at 9.4 times EBITDA. Markets had been speculating about this deal for years, so why has it taken place now? Arguably, the decision was made easier by Verizon’s share price, which is at a decade high, as well the the potential for rising interest rates. From Vodafone’s perspective, our main observations are that:
The deal is strategic for Vodafone and financial for Verizon. While the deal is a strategic transaction for Vodafone – it has decided to exit the US market – it is a financial transaction for Verizon: It already controlled Verizon Wireless through its 55% stake in the business. But after Vodafone’s exit, Verizon can keep the cash and no longer needs to pay out a dividend to Vodafone. It can instead use this retained dividend cash flow for capital expenditures and other investments to help boost its position in an increasingly competitive US wireless market (e.g., Softbank + Sprint; T-Mobile + MetroPCS).