Apple, China and China Mobile: Successes and Obstacles

Photo: Daniel J. Groshong / Bloomberg



On January 10 of this year, Tim Cook, CEO of Apple, made a rather bold statement. According to him, in the future, China should become the largest market for the company's products, surpassing the United States and Europe. The reasons for such statements from the leader of Apple is. At the moment, China is the fastest growing market for this company's products. According to data for the fourth quarter of 2012, Apple's sales in China (including Hong Kong, Macao and Taiwan) reached 6.83 billion dollars (the same figure for the last year amounted to 4.08 billion), reports Bloomberg . Apple's sales growth in China was more than twice as high as in other regions. In such a situation, further strengthening its position in the Chinese market has become for Apple one of its priority strategies.



However, to gain a foothold in the Chinese market is not as easy as it seems. Thus, according to the results of the third quarter of 2012, among the smartphone manufacturers, Apple took only sixth place in the PRC market, after Samsung (leader of the rating), Lenovo, China Wireless Technologies, ZTE and Huawei (the last four are Chinese companies).

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"Big Three" Chinese cellular operators. All three are state companies.



Currently, a significant share of Apple iPhone sales is carried out through retail networks of two major Chinese telecom operators: China Unicom and China Telecom. In the market of cellular communications of the People's Republic of China, these companies occupy the second and third place. Meanwhile, Apple has no such agreements with China Mobile, the largest Chinese operator. In addition, the fact that the iPhone does not support the TD-SCDMA 3G mobile communication standard used by China Mobile (which is not used anywhere other than China Mobile) significantly hinders cooperation between these two companies.



(why China Mobile preferred its existing standards to a separate question. According to one of the popular versions, this was done in order to avoid royalties)



When working on the China Mobile network, the iPhone, like other phones, can make calls, send / receive SMS, etc. without problems, but when you access the Internet, the connection speed will be limited to a rather slow 2G level (GPRS or EDGE). At the same time, with the 3G standards (W-CDMA and CDMA2000 1xEV-DO, respectively) used in China Unicom and China Telecom networks, the Internet in the iPhone works without any noticeable problems. If we consider that the bulk of the functions of the iPhone is somehow related to the Internet, the tariffs of the last two operators are becoming much more attractive for owners of iPhones.



There is an interesting situation. On the one hand, China Mobile subscribers (and there are already about 710 million ) are a poorly covered market segment for Apple. On the other hand, users of Apple products (and in China, if you look at the numbers above, are also quite a few), for their part, are a poorly covered segment for China Mobile. Therefore, both parties are interested in cooperation. So, back in September , data appeared on the Internet that the new iPhone 5 has the necessary technical "makings" for working in TD-SCDMA networks.



An important issue of cooperation with Apple is for China Mobile itself, which is facing an increasingly serious onslaught from competitors. So, according to the data at the end of December 2012, the share of China Mobile subscribers among the total number of users of 3G networks fell from 40.2% (data of the previous similar period) to 37.7%. The total share of China Mobile in the PRC cellular market also declined.



Trying to solve this problem, the company is actively conducting tests of 4G networks. Experiments with networks of the fourth generation began in China in 2011. Hong Kong has become a pioneer, where the 4G network from China Mobile is already active. As for the main part of the PRC, representatives of the Ministry of Industry and Information declare “good results achieved in 2012” and plan to expand the work in this direction. However, the exact timing and details of issuing licenses for the use of 4G has not yet been published . According to a Bloomberg analyst , this issue is especially important for China Mobile, because at the expense of 4G, the company hopes to restore and strengthen its position in the market (especially among smartphone users).



On January 10, Tim Cook met with Si Guohua, Chairman of the Board of Directors of China Mobile. The main topic of the meeting was just cooperation in the implementation of Apple products. The specific results of the negotiations are currently unknown. The statement made in December by China Mobile President Li Yue about the incompatibility of the company's iPhone and 3G networks mentioned above is very indicative. According to him, the main obstacles to compatibility lie not in the field of technology , but (oddly enough) in the economic sphere . In the end, everything “rests” on the conflicts of business models and unresolved issues of profit sharing. Perhaps another factor is the desire of China Mobile to support Chinese domestic manufacturers of smartphones, although this is just a guess. One way or another, the negotiations promise to be lengthy, especially considering the scale and ambitions of both companies.



Used materials from Bloomberg, South China Morning Post, The Wall Street Journal, Sina, morningwhistle.com, unwiredview.com and Wikipedia