Why Apple’s China deal could disappoint

December 23, 2013
December 23, 2013

At long last, China Mobile and Apple have signed a deal that will make the iPhone 5C and 5S available to the state-run telecom’s more than 760 million customers and fast-growing 4G network, which is expected to reach 360 cities by the end of next year.

The agreement is expected to give Apple a much-needed boost in China, where it ranks fifth among smartphone makers, behind Samsung and local players Huawei, Lenovo and Yulong. Projections of how many iPhones Apple might sell in the country thanks to the deal have ranged from optimistic (15 to 20 million in 2014, according to Global Equities Research) to very optimistic (70 million new iPhone buyers overall, says Mizuho Securities).

But there are a few things these rosy estimates have not taken into consideration:

  • Millions of China Mobile users already have iPhones. Some of the iPhone’s biggest fans in China are wealthy middle-aged buyers, for whom the phone has status-symbol cachet even if it has no internet access. Such consumers purchase the phones from Apple stores in China or abroad (or maybe on the black market), and then use them with their China Mobile SIM card, as if they were a basic cell phone. China Mobile had 10 million iPhone users in October 2011, according to research firm Trefis, and added another 1.25 million per month in the four months after that. Now that China Mobile and Apple have a deal, the users just need to get the phones unlocked, a China Mobile customer service rep told Quartz, and the 4G service is turned on for free.
  • China Mobile users who don’t already have an iPhone may be over them. Details regarding how much a new iPhone on contract will cost China Mobile subscribers are not yet available, and are expected on Dec. 25 when the telecom operator starts taking orders, the service rep said. Rival telecom companies are offering the 5S and 5C for free, if customers lock into long contracts. Even so, subscribers to these networks have not bought the phones at anywhere near the rate they bought last year’s iPhone 5. Leader Samsung now has over 20% market share in China, thanks to heavy marketing spending and cheaper smart phones.

“iPhone customers in China are an enthusiastic and rapidly growing group, and we can’t think of a better way to welcome in the Chinese New Year than getting an iPhone into the hands of every China Mobile customer who wants one,” Apple chief executive Tim Cook enthused in the Dec. 22 announcement about the tie-up.

The question, of course, is how many customers that really is.

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