Apple Inc. has signed a deal with China Telecom to sell its iPhone in China as it looks to boost its share in one of the world's biggest mobile phone market. China Telecom plans to offer the iPhone starting next month.
While Apple (Cupertino, Calif., USA) has now signed up with two of China's big three carriers, the largest, China Mobile Ltd (Beijing, P.R.C.), with more than 600 million subscribers, doesn't yet have compatible technology.
China Mobile has been aggressively negotiating with Apple to sell the iPhone, but it uses a home-grown proprietary 3G technology called TD-SCDMA that Apple doesn't support. It is, however, trialing its 4G TD-LTE network, with a commercial launch expected late this year or early in 2013, which will serve as a precursor to a deal with Apple.
Apple's smartphone market share in China, where the number of mobile phone users will top 1 billion this year, has fallen in the last two quarters, and it ranked fifth in October-December with 7.5%, overtaken by fast-growing local firm ZTE Corp (Shenzhen, P.R.C.).
"Apple's iPhone market share in China will be quite steady after its deal with China Telecom," said Jane Wang, an analyst with Ovum in Beijing. "The deal is bound to boost iPhone sales, but telecom operators won't be giving up the mid- and low-tier smartphone market, and sales of those phones will still be quite strong."
China Telecom, valued at more than $46 billion but still ranked the smallest of China's largest three carriers, said on Tuesday it would take online applications for the iPhone 4S starting March 2, and aimed to commence sales on March 9, bundling a phone with a service contract.
It follows China Unicom in striking a deal to sell the iPhone in a mobile market where the total number of subscribers rose 1.2% last month to 987.58 million.
China Telecom said it would increase marketing following the launch of the iPhone 4S, which should boost its long-term sustainable growth, but could squeeze short-term profitability.
In the first nine months of last year, China Telecom's net profit rose 10% to $2.2 billion, beating China Unicom's 0.28% rise and China Mobile's 5.4% gain.
Chinese firms such as ZTE and Huawei Technologies (Shenzhen, P.R.C.) are gradually shifting up towards the higher end of the market, unveiling more feature-packed smartphones.
"China Telecom will be doling out significant subsidies for such high-end handsets to boost sales, and this will have a lot of pressure on its profit this year," said Kelvin Ho, an analyst at Yuanta Securities. "I expect the deal to have a positive impact on China Telecom's financial results next year."
Analysts predicted last week that China Telecom would sell about 1.4 million iPhones this year if it could reach a deal with Apple by May, rising to 2-4 million new iPhone users in 2013.
"iPhone 4S has been an incredible hit with customers around the world. We're thrilled to be launching iPhone 4S with China Telecom and can't wait to get it into the hands of even more customers in China," Apple spokeswoman Carolyn Wu said.
Apple is also embroiled in a lawsuit in China with a local company over the iPad name and has had issues at suppliers' factories over wages and working conditions.