Apple favours Unicom over China Mobile

28 Jul

According to Chinese government data there were a staggering 695.2m cell phone users on the mainland at the end of June 09.  This represents a 52.5% penetration rate (+ 4% YTD).

Despite 2 years of talks between Apple and China mobile (SEHK: 0941 – the mainland’s largest mobile provider) the iPhone is yet to (legally!) enter the market.  The wait may soon be over.

China Unicom (SEHK: 0762 – China’s third largest mobile provider with 140m subs in June) has announced that it is getting closer to a deal with Apple.  Press reports suggest that sales may even commence as soon as this coming September and that Unicom has exclusivity for 3 years.

In an announcement to the stock exchange the company forecast annual sales of $732m from the iPhone (4.5% of 2008 annual sales), and says it expects to sell between 1 and 2 million units a year for CNY 3,000.

Opportunity to capture high-end users, increase ARPU
After years of under-performing against China Mobile and China Telecom (SEHK: 0728 – China’s second largest provider), this presents a clear opportunity for Unicom to capture significant major share in the high-end cell market.  The move will lead to increases in ARPU.

Why use Unicom?
I assume that teaming with a smaller provider gave Apple greater leverage in the negotiations.  One example is Unicom’s acceptance of Apple’s demand to pre-install its online software shop on the iPhone.  China Mobile would not acquiesce to this request

One issue to consider
The iPhone online store bills its clients’ credit cards.  This may present difficulties in China as not all users are likely to have a credit card.

Analysts recommendations – since June 28th
Buy: 1
Hold: 5
Sell: 2


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