China Mobile Eyes iPhone as Unlocked Market Blooms

The world's largest market does not have Apple's iPhone -- officially. But China Mobile on Monday told Reuters that it is interested in adding the popular device, even as reports suggest as many 400,000 unlocked iPhones are already in service on China Mobile's network.

China Mobile CEO Wang Jianzhou told Reuters that his company had not officially started talks "with Apple over the iPhone problem." But, he added, "as long as our customers want this kind of product, we will keep all options open."

Revenue-Sharing Obstacle

The world's largest mobile-phone carrier with 350 million subscribers, China Mobile said in January that initial talks with Apple had been called off, although Apple never confirmed that report.

The iPhone, launched in the U.S. and several European markets, has yet to formally launch in Asia. There are reports that Apple has started talks with NTT DoCoMo and Softbank to bring the device to Japan, but no deal has been announced.

In Japan as in China, the revenue-sharing arrangement that Apple has with other carriers is expected to be the main sticking point. Some analysts have estimated that Apple makes as much as $18 a month for each legitimate iPhone subscription, which means that an ongoing, major cash stream from iPhone's carrier partners is a key part of its business strategy.

A serious crimp in that strategy could be the 400,000 unlocked iPhones that were estimated last month by market research firm In-Stat to be running on China Mobile's network.

Apple has said it sold about 3.7 million devices, but only about 2.3 million are registered on carriers that have partnered with Apple. And, according to a report in The New York Times last month, iPhones are manufactured in China for Apple, exported, and then thousands are shipped and smuggled back to China. Some observers have suggested that this practice, in China and elsewhere, will cost Apple as much as $1 billion in lost carrier-based fees over three years.

iPhone Invites Adaptation

Chris Hazelton, an analyst with industry research firm IDC, pointed out that the iPhone is a GSM device and is intended as a worldwide device. "It's more of a software platform than traditional phones," he said, and so invites local adaption in unserved markets.

Because of its growing popularity, Hazelton expects to see either China Mobile or China Unicom, the two largest carriers in China, end up with the iPhone contract.

He noted that a touch-screen device like the iPhone is a better tool for the Chinese language because it has an interface that can be adapted with soft keys and a software upgrade. That appeal can only increase with the release of the iPhone's Software Development Kit, which is expected at an Apple conference later this week. The SDK will enable third-party applications to be created for the device, as opposed to browser-based applications.