A Reuters piece this week spun the failure of Apple and China Mobile to reach terms for introducing the iPhone into a crushing blow for China Mobile, with its shares off as a result. The truth is that this is more of a failing for Apple, and the new economic facts of life it has to live under.
Reuters has effectively fallen into the US press habit of thinking that the iconic Apple designed phone makes a single inch of difference to an operator that has more customers than any other cellular operator in the world, around 350 million.
This is more of a blow to Apple, but not a large one at that. Apple has managed, by being such a small handset supplier in terms of numbers, to attach a ludicrous premium on its devices, which are most definitively cool. But given that Apple only wants to ship around 12 million of them this year (we expect it will beat this number unless it is component constrained or charges too much), it can do without China for a while, or even take the device to China through a retailer, regulations permitting.
The Chinese market will always be a tough one for Apple. Customers there have been proven to want high end devices and are prepared to pay one month’s average salary for such a device, but Apple is asking something closer to the equivalent of two month’s average salary in its deals outside of China. The simple fact is that Apple does not yet have the economies of scale, and won’t have for at least three or four years, to price its products for China, let alone for even poorer places like India, where handset prices are far lower and where the cachet of owning the latest device is not quite so important as a cheap deal.
In order to get any kind of return on investment for the device, Apple has been reported as asking China Mobile for a share of subscription revenues, something that device makers like Nokia, LG Electronics and Samsung can avoid, and since they each have new devices with many of the features of the Apple device (albeit not quite so nicely put together as the iPhone), China Mobile will be happy to take those devices on better terms. Those manufacturers clearly have the scale, and the local manufacturing to price for the Chinese and Indian markets, and it is something that Apple will have to aspire to over time.