China Mobile iPhone talks break down; Apple now eyeing No. 2 carrier

China Mobile iPhone talks break down; Apple now eyeing No. 2 carrier

Summary: Chinese news outlets are reporting this week that talks between Apple and China Mobile, the No. 1 carrier in China with 415 million subscribers, have broken down.

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Chinese news outlets are reporting this week that talks between Apple and China Mobile, the No. 1 carrier in China with 415 million subscribers, have broken down. Now, according to other news reports out of China, Apple and China Unicom - the No. 2 player without about 130 million subscribers - are in talks.

The breakdown with China Mobile reportedly came down to who gets to control the iTunes App Store. The news outlet Interfax China said there were three rounds of talks over an 18-month period between China Mobile officials and Apple executives, including CEO Steve Jobs and COO Tim Cook. The Interfax China report, citing an unnamed source, offers these details:

In the first round of negotiations, Apple asked for between 20 percent and 30 percent of China Mobile's revenues from iPhone users, which was rejected by China Mobile, the source said. In the second round, Apple offered to sell iPhones to China Mobile at $600 per unit and required that China Mobile subsidize iPhone service bundles offered to users. Again, the two parties failed to reach an agreement. The third and final round of negotiations also broke down over Apple's insistence that it, rather than China Mobile, sell iPhone applications directly to customers via its online store. (China Mobile President Wang Jianzhou) saw the offer as a threat to China Mobile's dominance of China's mobile Internet industry, as Apple rather than China Mobile would collect money directly from customers under the deal.

The report notes that, unlike other parts of the world where users pay for apps by credit card, users in China prefer to pay for extras via deposits in their mobile phone accounts, which would leave China Mobile playing a part in administering the purchase of iPhone apps.

Clearly, this is not the first time that Apple and company have played hardball with partners before. In the iTunes store alone, we've seen Apple go head-to-head with record labels, TV networks and movie studios. Remember when NBC pulled its programming from iTunes, only to have the two sides kiss and make up later? (Although it's unclear who blinked in this game of chicken) And remember that Apple's first choice for a wireless carrier in the U.S. was Verizon, not AT&T. But when Verizon and Apple clashed over terms of a deal, AT&T (then-Cingular) was standing there on the sidelines.

Sure, the pool of potential customers under China Unicom is smaller than the pool with China Mobile. But the integration of the iPhone with the China Unicom network could be easier. Fortune's Apple 2.0 blog reports:

China Unicom has an edge over its larger competitor: On May 17, it will launch China’s first 3G service based on the WCDMA (Wideband Code Division Multiple Access) protocol — the one Apple employs. That would allow China Unicom’s customers to use off-the-shelf iPhone 3Gs without modification. China Mobile, by contrast, is sticking with its home-grown TD-SCDMA (Time Division Synchronous Code Division Multiple Access) protocol for 3G service. In order for Apple to serve China Mobile customers, it would have to build a special Chinese iPhone with a different cellular modem chipset.

Last month, Apple patted itself on the back for selling 4.4 million devices in the December quarter, taking the number of devices "well ahead of the 10 million unit goal for the year that we set when we introduced the iPhone," CFO Peter Oppenheimer said in a conference call with analysts.

At one point last year, however, Piper Jaffray analyst Gene Munster had set an aggressive goal for Apple - 45 million iPhones by the end of calendar year 2009. Of course, that was before the global economy tanked, based on predictions that Apple would have introduced a family of two to three iPhone models by January 2009 and ink a deal with China Mobile by mid-2009.

As of now, that family of iPhones theory hasn't played out and the China Mobile deal isn't looking all that promising either.

Topics: iPhone, Apple, Hardware, Mobility, Wi-Fi

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7 comments
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  • Apple is proving over and over again...

    Apple is proving over and over again that they are not a company that partners well. They certainly approach everything with a "My way or the highway" approach, both in their dealings with potential partners [b]and in their dealings with customers[/b] ( *cough* DMCA charges against those who [b]dare[/b] want to install their own apps on an iPhone *cough* ).

    Apple's conduct needs to be factored into the cost of doing business with them.
    NonZealot
    • Yes...all those partners making $ on iPod accessories must be really bummed

      There's a whole ecosystem that allows dozens of manufacturers to make
      good $ selling cases, car chargers, and so on for iPod and iPhone...not to
      mention all those partners making good money selling Apps on the App
      store. By contrast, look at all those partners who put their money down
      for "Plays For Sure" shortly before MS canned it in favor of the Zune.

      ATT seems pretty happy as a partner too.

      ChinaMobile wanted more than Apple was willing to give... it's called the
      marketplace.
      UGottaBKidding
      • Missing the point

        You don't need to be a partner with Apple to build iPod accessories or sell apps through the app store. And the money one can hope to gain from either business is peanuts compared to what a company like China Mobile would stand to lose by forking over 20-30% of their iPhone related revenue to Apple.
        Theli
        • The real point

          Perhaps you're right. But the real point is that, despite NonZealot's spin
          and insinuation, there's nothing sinister in Apple deciding that they're
          not interested in the deal offered by ChinaMobile and, consequently,
          looking elsewhere. It's just the marketplace in action, even in a
          communist country.
          UGottaBKidding
      • Yeah, until Apple changes their mind

        [i]There's a whole ecosystem that allows dozens of manufacturers to make good $ selling cases, car chargers, and so on for iPod and iPhone[/i]

        First off, these aren't partners, they pay Apple a ton of money for the right to label their packaging "Made for iPod". There is no partnership there, there is Apple milking a brand name for all it is worth. Don't get me wrong, Apple [b]should[/b] milk their brand name but make no mistakes, that isn't a partnership.

        However, since you brought it up, Apple has shown a pattern of abuse towards companies it does business with. First they allowed clones, then out of the blue, stopped allowing them, screwing all those poor clone makers out of business. First they allowed Apple resellers and then they screwed all those Apple resellers by withholding stock, denying warranty repairs, and selling stock at the Apple store at below cost, a classic monopolist move. Google for [i]Apple reseller class action lawsuit[/i] and you will see many hits describing just how good a partner Apple was.

        You might be able to make money with Apple for the short term but in the long term, Jobs will always find a way of making you pay dearly for it.
        NonZealot
        • Yeah, I hated it when Apple abused...

          their partners with that whole "Playsforsure" thing. And then when they
          did that whole "certified for...." thing.

          *cough*
          msalzberg
    • And you are proving once again..

      that facts don't matter to you.

      The EFF is asking the copyright office for an [b]exemption[/b] to DMCA,
      so that their admittedly illegal activities can continue. Apple
      [b]responded[/b] to that request.

      Now, to restate in words you may understand: The EFF knows they are
      breaking copyright law. They started this by asking for the law not to
      apply to them.

      Got it? *cough*
      msalzberg