Apple & China Mobile Must Keep a Deal

Both tech giants may be unaccustomed to the art of compromise. But they need to get a deal done before both end up losing more than either can afford.

Published

5 months ago

Categories

Technology, Finance

Topics

Finance, Consumer Electronics

People

Jon Gordon, Tim Cook

Places

China

Companies

Samsung C&T, Apple Inc., Fitch, Inc., China Unicom (Hong Kong) Limited, China Mobile Limited, China Telecom Corporation Limited

Transcript

Here's a pro-tip. If you want to be the world's largest smartphone maker, you should probably cut a deal with the world's largest wireless carrier. It sounds simple. But if you're one of China Mobile's 700 million subscribers, you still can't buy an iPhone on contract. There are two reasons for this. First, China Mobile's current 3G network is a custom job. And that means Apple would first need to create a modified iPhone to work with it at full speed. That may become a non-issue though. China Mobile is building up a replacement 4G network now, and a teardown of the latest iPhone 5 shows it has a new LTE chipset that should be fully compatible. The second, more serious problem is that China Mobile wants a bigger share of benefits, which reportedly means a slice of App Store revenue. Negotiations have dragged on since 2009, with Tim Cook back in China for talks earlier this month. The question now is who will blink first. You might think Apple. While still growing in China, the firm is being outpaced by Samsung and other android makers. Unconfirmed reports now suggest Apple may be slashing its LCD orders from suppliers, as demand for the iPhone 5 fails to meet expectations. But China Mobile is on the back foot too. Its rivals China Unicom and China Telecom have both been on the attack. 3G subscribers are the most profitable part of the market, and China mobile has seen its dominant share of these customers erode in the last 12 reporting months. A trend that analysts expect to continue through 2013. There's also a risk of more heavy-handed regulatory reforms for China's telcos in the coming years, according to ratings agency Fitch. While China Mobile may have the largest overall subscriber base in China. Most users are on pay-as-you-go terms, with no subsidies for expensive handsets like the iPhone. To an extent, that does somewhat cap the potential upside for Apple. That means while they do want a deal, don't expect them to bend over backwards to make it happen. SOUNDBITE: REUTERS REPORTER JON GORDON, SAYING (English): "So where do we stand today? Well, Apple and China Mobile need each other more than ever. The time is ripe for them to cut a deal, and make it happen before both of them lose more than either can afford."