China Telecom (Beijing, China) plans to offer its 106 million subscribers the Apple Inc (Cupertino, California) iPhone by the end of 2011, sources said on Wednesday.
The move would help China Telecom, the smallest of the country's three telecommunications operators, establish more 3G users in a competitive market. China Telecom operates the country's largest fixed-line network and is a relative newcomer to the mobile market.
"The reason telecom operators are fighting for the iPhone business is because everybody is trying to grab as many 3G users as possible," said Jane Wang, an analyst at UK-based research firm Ovum. "The only way to keep costs down is to build up such a user base."
China has 896 million mobile phone users -- larger than the entire population of Europe. Its three telecommunications operators are China Mobile Ltd, China Unicom and China Telecom.
So far, China Unicom is the only operator to offer the iPhone after signing a three-year agreement with Apple in 2009. Its deal with Apple is not based on a revenue-sharing scheme, unlike some operators in other countries. For example, in the United States, Apple has a revenue-sharing agreement with AT&T Inc on iPhone sales.
"Unicom is selling iPhones, but there was no particular boost to their earnings from that," said Patrick Yiu, director at CASH Asset Management. "Even if China Telecom gets the iPhone deal, it will still depend on whether their system can support it and on the details of the contract."
In May, China Telecom's chairman, Wang Xiaochu, told a news conference that the carrier had contacted Apple to launch the iPhone based on CDMA (code division multiple access) technology.
"It's expected to happen this year. China Telecom already has the required technology and it all hinges on the content of the agreement. As we all know, it's not easy to negotiate with Apple," a source close to the company, speaking on condition of anonymity, told Reuters.
China Telecom is expected to introduce the iPhone in November, said another source, declining to be identified because he was not authorized to speak to the media.
Officials with China Telecom declined to comment, while Apple officials were not immediately available for comment.
In June, a media report said bigger rival China Mobile could offer iPhones from September, although analysts said it was unlikely that Apple would support the carrier's TD-SCDMA (time division synchronous code division multiple access) technology.
A more likely scenario was for Apple to support China Mobile's 4G LTE (long-term evolution) technology, which would only be available either in late 2012 or 2013, they said. If that is the case, China Telecom would be next in line to offer iPhones.
"Widening its user base by developing 3G is China Telecom's top priority," said Kevin Tian at Analysys International. "However, its costs might be higher than China Unicom's and if it brings in the iPhone, its sales and marketing expenditure will not be low."
China Telecom's shares, which have risen by about a fifth this year, extended earlier gains after Reuters reported the plan, rising as much as 5.5% to an intraday high of $0.64 (HK$4.95).
(Editing by Chris Lewis and Matt Driskill)
Historically, network infrastructure is the most expensive component in a mobile operator's overall CAPEX, which holds true in China, the biggest and fastest growing 4G market in the world. This report provides an in-depth overview of market revenue, equipment shipments, and the competitive landscape for carriers. Buy now