Apple strikes China Mobile deal, but will reality match the hype?

Rumors of an Apple partnership with China Mobile have circulated for years, with the latest round of whispers starting in September, and the two firms finally delivered today.

Apple and China Mobile announced that they are bringing the iPhone 5s and 5c to the world’s largest mobile network next month, with the devices available both in China Mobile stores and Apple’s own Chinese stores from January 17, 2014. Pre-orders begin on December 25 on China Mobile’s website.

This came after Chinese authorities issued 4G licenses to the three major telecommunication operators in the country. Earlier this year, Apple gained regulatory approval for its iPhones to run on the TD-LTE standard used by China Mobile for its 4G networks.

There has been a lot of hype over China Mobile’s iPhone deal. It seems like for Apple, being present on the world’s largest carrier — with over 740 million customers — would significantly widen its reach and sales efforts in China’s mobile market.

However, there are several factors already working to counter this fact. It cannot be denied that it is good news for Apple to have finally signed a deal with China Mobile, and there will be an increase in new iPhone customers, but the promise of 740 million new customers — or even a couple of million — looks to be well overhyped.

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Apple fans already have their iPhones

Despite China Mobile not offering the iPhone, the other two carriers — China Telecom and China Unicom — do so. There is no stopping customers from heading over to both of those other operators if they really want to get their hands on the iPhone, even if that means living with less-stellar network coverage.

Furthermore, it was recently revealed that according to internal statistics, 42 million of the more than 740 million China Mobile subscribers were carrying an iPhone — even without a deal with Apple.

This fact actually points to how there is already a critical mass of die-hard Apple fans who have gotten their hands on the iPhone — and a deal with China Mobile does not necessarily mean new iPhone customers: it just means these current iPhone users get to finally switch on high-speed data on their phones.

Apple had not been able to offer the iPhone on China Mobile primarily because it was unable to support the operator’s unique TD-SCDMA 3G network — used only by the operator and no others worldwide. This meant that the iPhone users on China Mobile’s network could only use their phones for 2G – GPRS/EDGE services.

However, those who are die-hard Apple fans would  not blink an eye at just having the iPhone as a second smartphone alongside their main phones that are compatible with China Mobile’s 3G network.

Obviously, they must be able to afford it too.

The iPhone is expensive for Chinese consumers

Which brings us to our next point — that the iPhone sits squarely in the high-end smartphone category, which puts it out of reach for a lot of people.

Among the more than 740 million customers on China Mobile, how many can actually afford an iPhone? Even the lower-cost iPhone 5c is cheaper, but not cheap.

According to a recent Kantar Worldpanel ComTech report, Google’s Android operating system is growing steadily in China, gaining about a three percent share each quarter, as consumers seek lower-priced Android devices which are being produced by local brands.

For a stark comparison of how Apple is being threatened in China, look to Chinese smartphone manufacturer Xiaomi — which hogged the limelight for overtaking Apple in terms of shipments in China’s smartphone market in the second quarter this year, according to figures from Canalys, an independent analyst firm.

Kantar’s latest data also notes that Xiaomi has nearly doubled its share of smartphone sales in China over the last 12 months — from 6.6 percent in Q3 2012 to 12.7 percent in Q3 2013. Kantar says that “Xiaomi is challenging the No. 2 spot” — as Apple’s share also slid from 24.7 percent in the third quarter last year to 13.8 percent this year.

The deal with China Mobile gives many investors hope that such a trend could be reversed — but already analysts are all over the place with their estimates, according to a report by Business Insider. A bearish view from one of the analysts led to a mere one million estimate in new iPhone sales, while others range from 12 million to 17 million.

China Mobile will benefit more than Apple

Essentially, it looks like those who love the iPhone have already gotten their hands on it somehow or other — they either ditched China Mobile and headed over to the other carriers, China Telecom and China Unicom — or they just bought it off-contract or on the gray market.

All that’s left to convince are those who are China Mobile subscribers who aren’t that fanatic about Apple but may be swayed to buy an iPhone when it gets offered on the carrier — honestly not that compelling a case. There will obviously be an increase in new iPhone customers, but whether or not there will be a huge mass of new iPhone customers is the issue that is rather murky at this point in time.

The partner that will benefit more from this deal is China Mobile — as it gets to add another option to its variety of subscribers and possibly keep those who are thinking of jumping ship to the other two carriers.

It doesn’t seem like Apple will benefit as much as it’s been hyped up for. However, the saving grace could be subsidies — if China Mobile doles out a generous subsidy on the iPhone, it could sway consumers for whom the iPhone is just that bit too expensive.

For comparison, the iPhone 5s will cost CNY5,499 ($898) on China Unicom — when users choose a monthly plan that costs CNY386 per month ($63) and commit to a 30-month contract, they’ll get it for free. The iPhone 5c is going for CNY4,699 on-contract via China Unicom. Signing on to the CNY286 monthly plan for three years or the CNY386 monthly plan for two years will get you a free one.  On China Telecom, the iPhone 5s is free for those who subscribe to a two-year contract at a monthly cost of CNY389, while the iPhone 5c is free for buyers who sign on to a monthly plan of CNY329 for two years.

Advertisements and promotions could also play a huge part in getting the news out to consumers once the iPhone lands in China Mobile stores next month.

If both firms play the game well, they might just be able to sway phone users who haven’t had their mind made up — which could add up to a substantial number after all. Even if it may not be 740 million new iPhone customers, even a hundredth of that number could help boost Apple. After all, Apple revealed that it sold 33.8 million iPhones and 14.1 million iPads in the fourth quarter of 2013 — and millions more in sales will definitely be a boon.

Headline image via Lintao Zhang/Getty Images, images via Getty Images, Getty Images and Getty Images