China Mobile (CHL) signed a long-awaited deal with Apple (AAPL) to offer the iPhone to its subscribers. This deal will give the US-smartphone giant a point of entry into the world’s largest mobile market. The iPhone maker has struggled to maintain its market share in China due to competition from lower-cost competitors. This deal presents a major growth opportunity for Apple, which has been facing a slowdown in developed markets and stiff competition from Samsung (SSNLF).
Apple had a 6% market share of the Chinese smartphone market over the last quarter compared to 21% for Samsung. The Cupertino-based tech giant should see an uptick in its market share in China following the deal but getting a foothold won’t be easy as the Chinese mobile market is highly competitive and offers a variety of cost-effective contract options to its price-conscious customer base.
China Unicom Hong Kong Ltd (CHU) and China Telecom (CHA), two smaller carriers with about 250 million and 170 million subscribers, are already offering the iPhone.
The roll-out of the iPhone with China Mobile is expected to start around December 18, and is likely to coincide with the launch of 4G services in the country on the same date. This deal will give Apple access to a subscriber base that is seven times the size of Verizon Wireless, the largest mobile carrier service in the US.
Apple has been eager to tap into China Mobile’s large pool of potential iPhone buyers largely to keep pace with Samsung. Samsung is the leader in the global smartphone market with a 32.1% market share in 3QFY13 as per Gartner research, although this is flat when compared to 3QFY12’s results. On the other hand, Apple registered a 12.1% market share in the global smartphone market for the same quarter, down by 2.2 percentage points compared to 3QFY12. China Mobile has over 700 million subscribers and this could potentially lead to significant gains for Apple.
Earlier this year Apple CEO, Tim Cook, visited China to discuss a deal with China Mobile even though Apple was initially reluctant to go through with the proposition because of the relatively unreliable 3G network in China. China Mobile backed off when Apple insisted on sales volume guarantees. The second round of talks were successful, primarily based on the awarding of 4G licenses by China's Ministry of Industry and Information Technology.
In many cases the iPhone has not only been a game changer for the smartphone industry, but also for mobile carriers. Carriers who did not offer the iPhone have at times lost subscribers to providers that did. NTT DoCoMo (DCM), the leading cellphone service provider in Japan, with a user base of over 60 million and a 45% share of the Japanese market, has lost 3.2 million subscribers over the last four years because of its decision to not offer iPhones. Its rivals, SoftBank and KDDI continued to increase their market share during the same period. NTT DoCoMo has finally linked up with Apple since the last quarter and has captured 61% of all iPhone sales in Japan.
Over the years, Apple has realized that growth lies in emerging markets. At the same time, China Mobile is fully aware of the fact that not offering the iPhone may lead to a decline in its all-time high subscribe-base. This deal could be a win-win for both Apple and China Mobile.