With China Mobile, Apple Finally Cuts To The Core Of The World’s Biggest Phone Market

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.

We’ve started to see Apple resellers discount the iPhone 5c as much as 15%, and even lower on the grey market. But the iPhone will remain a high end, expensive product that won’t interest buyers focused on low end, low cost devices which will continue to be dominated by open source versions of Android phones that lack Google’s services.

The result will be similar to Apple’s success elsewhere: The iPhone will do very well among influential and valuable customers and even a broader audience, but the iPhone won’t gain dominant share. With the last large group of untapped iPhones customers now tapped, Apple won’t be able to dramatically expand iPhone share further without some change to pricing, subsidies, or experience.

Be sure to check back with Bryan Wang for more details on the iPhone in the China market when he returns from holiday. 

What do you think? Is there another angle to this China Mobile - Apple deal?