updated 02:05 am EST, Tue December 3, 2013
First acknowledgement of deal between Apple and world's largest carrier
A website owned by a subsidiary of China Mobile has begun taking pre-orders for the iPhone 5s and iPhone 5c, the first time any site affiliated with China's (and the world's) largest carrier has done so. The move signals a formal deal between Apple and the carrier, which has taken some six years to put together -- and marks the opportunity of a lifetime for Apple to make more serious inroads in China's expanding smartphone market.
The site, which is native to one of China's richest cities (Suzhou, near Shanghai), would be a prime target for new and upgrading Apple customers, reports Fortune's Philip Elmer-Dewitt. China Mobile has some 740 million subscribers, but the iPhone has never been sold directly by the carrier or its retailers before, with only the second- and third-largest providers (China Telecom and China Unicom) providing compatible service for Chinese customers.
A major stumbling block in the negotiations between the two smartphone giants -- which saw Apple CEO Tim Cook make repeated trips to China to resolve -- centered around not only Apple's high subsidies and post-paid business model, but also a technical hurdle: China Mobile uses a proprietary 3G standard and an unusual 4G/LTE configuration called TD-LTE, which only the very latest iPhone models are compatible with. Until recently, the carrier's LTE network was not well-deployed enough to be considered "nationwide," but the service is now operational in most of China's major cities and population centers.
Apple achieved a crucial technical certification of compatibility with China Mobile's network in September, but even now no formal agreement has been announced -- though numerous sources have repeatedly pointed to December 18 as the formal launch date. Last year, the carrier admitted it had some 15 million unofficial users already on its network, even though they were limited to EDGE-like data speeds.
Android-based phones dominate the Chinese smartphone market, but many are not connected to Google or its Play store in any manner and would not qualify by US standards as "Android smartphones." Among genuine iPhone competitors, Samsung has by far the largest marketshare -- but a fair proportion of that comes from feature rather than smartphone sales.
The country, where average wages are a small fraction of those in the west, is also largely on prepaid rather than credit payment systems. Marketing to the country will thus require some different tactics from Apple, but the company has had significant success with aggressive marketing pushes and instalment-payment plans in other prepaid-dominant countries such as India.
Still, Apple may be content to aim its products squarely at the rapidly-expanding middle- and upper-class customers of China, leaving the lower-end to local Chinese manufacturers and Android clones. Apple has shown a propensity to focus more on quality, product integration and profit than obtaining marketshare at all costs, a strategy it has used very successfully to become the most influential and profitable company in the world, if not the best-selling.