Nokia's China Mobile deal: A pawn in the subsidy fight with Apple?

Nokia's China Mobile deal: A pawn in the subsidy fight with Apple?

Summary: Could Nokia’s partnership with China’s largest mobile operator prove Nokia CEO Stephen Elop was right when he said carriers, fearful of Apple’s dominance, would kickstart Windows Phone?

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Nokia's newly inked partnership with China's largest mobile operator is an important milestone in the Finnish company's comeback, even if it is just a pawn in China Mobile's battle with Apple.  

The deal Nokia carved out with China Mobile – which saw operator agree to carry a version of Nokia's flagship Windows Phone 8 handset, the Lumia 920T, that has been tailored to the Chinese market – coincided with the biggest slide in Apple's share price since 1988, leaving analysts searching for explanations. 

Lumia 920
China Mobile will carry the Nokia Lumia 920T, which has been customised for the Chinese market. Credit: Josh Miller/CNET

Piper Jaffray analyst Gene Munster guessed Apple's share price may have fallen because some investors mistakenly believed the deal between Nokia and China Mobile was exclusive. Few believe that's the case, but for now, the partnership gives Nokia the first crack at China Mobile's 79 million 3G subscribers. (China Mobile's rivals, China Unicom and China Telecom, both carry the iPhone and offer Apple 70 million and 55 million 3G subscribers, respectively.)

Munster expects the iPhone to become available on China Mobile's network by the second half of 2013, some months later than some others are predicting.

Deutsche Bank analysts recently predicted any deal between China Mobile and Apple is likely to be some time away as the Chinese government, a major shareholder in the network, does not support what it calls the "heavy subsidy burden" tied to the iPhone. The other issue holding up an agreement is thought to be that the iPhone doesn't run on China Mobile's custom TD-SCDMA network.   

The incompatibility theory, however, is wrong, according to China Mobile president Li Yue. Shortly after the Lumia 920T announcement, he said that "business models" and revenue sharing, not TD-SCDMA, was keeping the iPhone away from its subscribers. 

While Nokia's Lumia 920T will have no easy time swaying Chinese consumers from locally made Androids, the partnership does show, as Nokia CEO Stephen Elop said at Nokia's Q3 earnings, that operators can change the balance of power in the current two-horse ecosystem race. 

Apple in all likelihood will reach the final third of China's current 3G market, but every month it refuses to lighten the "heavy subsidy burden" is another month someone else can make inroads in the country's mobile market.

Topics: Nokia, Android, Apple, iPhone, Mobility, Smartphones, China, Windows Phone

Liam Tung

About Liam Tung

Liam Tung is an Australian business technology journalist living a few too many Swedish miles north of Stockholm for his liking. He gained a bachelors degree in economics and arts (cultural studies) at Sydney's Macquarie University, but hacked (without Norse or malicious code for that matter) his way into a career as an enterprise tech, security and telecommunications journalist with ZDNet Australia. These days Liam is a full time freelance technology journalist who writes for several publications.

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4 comments
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  • Possibility

    The 3G users part is misleading, as the numbers for all three Chinese carriers are very similar, however it is the potential of the total base of 700 million subscribers on China Mobile, is what has the investors worried about.
    schultzycom
  • Same story, different country.

    Apple owns the high-end, while the other handset makers fight over the rest of the market. Carriers will always whine about the subsidies, but they continue to fall over themselves to get (cf T-Mobile) or keep (cf http://www.rcrwireless.com/article/20121204/devices/apple-tests-lte-networks-enabling-lte-iphone-5/) the iPhone because they know the most valuable consumers demand it. As long as Apple maintains its "aspirational" brand status this is going to continue.
    matthew_maurice
  • Or...

    ...Apple simply waits until China Mobile's 3G market share drops below that of Telecom and Unicom and comes crawling back to the negotiating table.

    Just like all the other carriers who have tried to hold out against the iPhone.
    Englishmole
    • American model

      In many countries the american buisiness with free phones and insanly expensive contracts fail. Many operators offer lower price for the same contract if you bring your own phone or settle for a low cost android or WP phone.
      Oden79