Apple Takes Another Bite

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Just over a year ago we reported on Apple’s iPhone problems in China. The story continues to ruble, with a couple of interesting stories recently published. The Washington Post reports:

    “…we’re getting a little more detail as to what the sticking points are between the two companies. According to Interfax, which cites a source at the China Mobile Research Institute quoting the carrier’s president Wang Jianzhou, the 18-month old negotiations, which included Apple CEO Steve Jobs and COO Tim Cook, broke down three times. In the latest round- their third – the two haggled over which company would sell iPhone applications directly to customers. As it does everywhere else, Apple wanted to sell directly to consumers through its App Store. China Mobile chiefs, however, balked at this. Wang apparently considered the notion of Apple interacting and directly collecting payment from Chinese consumers as a “threat” to the operator’s dominance over the country’s mobile internet market. China Mobile has a 72 percent share of the market, or 634 million subscribers as of the end of November. In September last year, it reported it had 100 million registered users signed up to its instant messaging service, 80 million to its music service, and 40 million to its newspaper service.

    …For the record, Interfax’s source confirmed the reasons why the first two attempts broke down. The first round stalled when China Mobile rejected Apple’s demand that it get a 20-30 percent cut of the revenues generated by iPhone users. That cut was standard operating procedure when Apple first launched the gadget and made exclusive pacts with carriers to sell the phone. In the second attempt, Apple offered another standard deal as its made with other carriers around the world?to sell each iPhone to China Mobile at $600 a unit, with the Chinese carrier subsidizing the handset and its service bundle. The two failed to come to an agreement, though its unclear which company was to blame.

    …Canaccord Adams analyst Peter Misek is predicting in his latest report that Apple will release a lower-cost handset based on the 2.5G iPhone targeted at China and India to drum up sales. The two countries might fare better with the 2.5G model as India doesn’t even have 3G networks up and running, while China Mobile’s 3G networks are built on a non-compatible technology.

    But what’s also clear is China Mobile believes Apple needs them more than they need the iPhone, since in all of the negotiations Apple seems to be offering pretty much the same deal as all of the other networks its dealt with. Meanwhile, the negotiations with Apple over the App Store has now got China Mobile thinking. Interfax’s source said the carrier was “mapping out its own strategy” to offer smartphone apps.”

Another Post article goes on to say that Apple is playing China Mobile off against China Unicom:

    “Apple (NSDQ: AAPL) may look to China Unicom to launch the iPhone in China, which would have its pluses and minuses for the company…The Fortune Apple 2.0 blog quotes some Chinese publications as saying that Apple is now in talks with China Unicom, the second largest carrier in China, and the iPhone may be available as early as May 17. Although, the article does note that the talks “have stumbled over some of the same issues as the China Mobile talks – including government restrictions on cell phones with integrated Wi-Fi”.

    The downside for Apple is fairly obvious – China Unicom has “only” about 130 million subscribers compared to China Mobile’s 415 million. Of course, this gives Unicom more incentive to launch a handset which may draw subscribers away from its rivals. There is a relatively recent upside – China Unicom will be rolling out a 3G network based on the WCDMA standard, which Apple uses in the iPhone, while China Mobile will be rolling out a TD-SCDMA network, which nobody uses…The 3G licenses weren’t issued when Apple began negotiations?and there was no 3G iPhone either.”

The hand of government – and the licenses they dole out – may therefore have a role in the outcome. But it seems that the MBA lesson, provided by a senior China Mobile manager, in our earlier post still stand:

    • Understand the increasing power of local players and technologies (and decreasing power of foreign ones);
    • Note that business drivers and perceived benefits may be different for a local firm (especially a dominant one – or even a less dominant one, such as China Unicom, that suddenly becomes partner of last resort!);
    • Keep discussions private, but be ready to play the consumer PR game;
    • Appoint, use, and listen to local managers who know the local market;
    • Have a “Plan B”!

One Response to “Apple Takes Another Bite”

  1. Administrator Says:

    Could Unicom be a bit closer to a deal? http://www.redherring.com/Home/25870

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