7 Dec 2012

China Mobile Not Sold on iPhone Subsidies

iPhone 5 China

It has long been said that the iPhone's largest bottleneck in China was a network incompatibility with China Mobile, the country's largest carrier. However, recent statements by China Mobile President Li Yue hint that Apple's subsidy demands may be the bigger stumbling block.

When asked about a potential deal with Apple, Li Yue stated that “technology is not a problem, it’s mainly about business model and benefit-sharing issues”. The tech media has been speculating that this is a negotiation tactic, but I'm not so sure that's all it is. Although both China Telecom & China Unicom were willing to shell out the required subsidies, China Mobile is a different case. China Mobile is not only China's largest wireless carrier, but it is also owned and controlled by the Chinese government. After approving China Mobile's decision to increase subsidy expenses by 30%, it is no surprise that the Chinese government is opposed to any deal that further increases their subsidy burden.

From Apple's perspective, it would be difficult to give China Mobile preferential treatment to push through a deal, as the terms would definitely affect deals with other carriers. And from China Mobile's perspective, while the iPhone may be desirable to help maintain a certain demographic mix among their subscriber base (to indirectly drive ARPU) and reduce churn rate, the subsidy trade-off and subsequent impact on profitability makes any deal a tough pill to swallow. In light of China Telecom's poor profitability since its own iPhone deal and the stabilization of China Mobile's ARPU drop (which is still higher than competitors), it may be difficult for Apple to get carrier to blink.

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