As everyone who reads news sites knows by now, Apple has overcome perhaps its biggest remaining hurdle and negotiated a deal whereby the iPhone can be sold in China. Failure to do so would have left rivals an opportunity to increase market share over Apple, and give them a country platform big enough to overhaul the colossal impact Apple’s market entry has had.
What’s interesting is that the deal with China Unicom will lead to Apple devices not attracting quite so much profit, because it is widely believed, though not explicit, that Apple will get no portion of data revenues from China Unicom, instead it will simply sell devices at pre-arranged volume prices.
What most commentators believe is that Apple has some guaranteed sales numbers (Unicom has pre-ordered 5 million phones) and are predicting 2 to 3 million iPhones sold in China next year. Now that we believe. Chinese operators have strong market control of what their handset mix is, and have been quite clear in negotiations (though don’t like to admit it publicly) that they can promise a certain number of sales. China Mobile for instance is in the habit of using a guarantee of a certain number of sales to get better terms.
But at the same time China Mobile, the company that was Apple’s first choice to carry the iPhone is just about ready with its own answer, the OPhone. The OPhone is the first TD-SCDMA device with its own Android-based operating system, user interface and store.
The main sticking point for Mobile was said to be Apple’s insistence on its own brand and app store taking precedence over the cellco’s user experience – China’s largest cellco sees the creation of a highly differentiated, operator specific software platform as its main weapon to stay ahead of its rivals, despite being burdened with the single-carrier TD-SCDMA network and ecosystem.
CEO Wang Jianzhou told a press conference yesterday that more than 20 vendors, including Lenovo, Dell, LG, Dopod, Philips and Hisense, were working on OPhone notebooks, netbooks and phones. Handsets from Dell, Dopod (part of HTC) and Lenovo were on display and will be available commercially “straightaway.’ He described OPhone as the “world’s first operator developed” smartphone OS and said he was aiming for a target price of RMB1,000 ($146) for TD-SCDMA handsets.
The initial devices are not quite hitting that price spot, with the Dopod A6188, a reworked version of the Magic from parent company HTC, priced at $730. The Lenovo Mobile O1 resembles the iPhone and displays apps in rows of colored squares rather like the Apple interface. The Dell OPhone prototype had a similar display layout with 3.5-inch touchscreen and China Mobile’s own instant messaging, email and search – but without 3G support at this stage.
China Mobile also made a software developers’ kit (SDK) available, and will soon open its own OPhone store too. It says the platform is geared to making it easier to vendors to design phones for TD-SCDMA – the carrier has repeatedly complained of the limited choice of phones for its platform, compared to its rivals’ more widely used W-CDMA and CDMA2000, and is plowing considerable funds in to co-developments to encourage suppliers. As well as OPhone, its store will contain apps for Symbian and Mobile is working closely with Nokia. While the Finn will not support the Android-based OS, other majors like Motorola and LG are said to be developing OPhones.
Meanwhile, CDMA operator China Telecom is said to be in talks for its own smartphone exclusives, with the RIM Storm and Palm Pre possibly in the frame. And W-CDMA carrier Unicom has netted the iPhone, though its deal does not include revenue sharing, but is a straight exclusive wholesale agreement. Unicom chairman Chang Xiaobing said the operator will offer two versions of the 3G iPhone in the fourth quarter, at a subsidized price yet to be announced.
The Q4 iPhone roll-out will accompany the expansion of the W-CDMA network to 285 cities by September 28, and 335 cities by year end. Executive director and president Lu Yimin said Unicom is targeting one-third of China’s 3G market in 2010, and expects 3G to account for 20% of the total mobile user base in a year’s time. The biggest competitor to the Unicom iPhone may well be the iPhone itself – BDA China Research estimates there are already 1.5 million grey market devices in the country and this channel is unlikely to disappear, especially as some run Wi-Fi, which has been disabled for Unicom. However, the unofficial handsets cost about $680, so Unicom will need to subsidize its versions to well below that level, hoping to compensate with a boost in ARPU, as seen by other iPhone carriers like AT&T. In the first half of this year, the cellco’s ARPU fell from RMB43.6 to RMB41.7 ($6.10), and its first half net profit fell 45% year-on-year to RMB6.62bn, mainly because of weak fixed line business and rising competition.
Investment analysts at TownHall Research said in a research note: “The rumors say China Unicom will buy 5 million units. Our reaction is that 5 million units is likely a target number upon which pricing is based. Our analyst on the ground in China believes that if the iPhone is available early enough in the fourth quarter, it could add 1 to 2 million subscribers.”