Apple's iPhone bonanza via China Mobile: Is a half built LTE network a drag?

Apple CEO Tim Cook is upbeat about iPhone volume through China Mobile, which has a fast network that needs to be expanded in more cities to really deliver unit volume.
Written by Larry Dignan, Contributor on

Apple's iPhone will launch on China Mobile on Friday and CEO Tim Cook is calling it a "watershed day" as analyst ratchet up unit estimates. But Apple's real boon will come when China Mobile gets its 4G act together.

Indeed, Cook has every right to be optimistic. Access to China Mobile's 760 million subscribers is a big long-term business win for Apple. Apple's 5S will start at 5,288 yuan, or about $874, for the 16GB version and the 5C will run 4,488 yuan for the 16GB version.

CNBC had video of the Cook interview and the two companies were stoked about the iPhone launch. China Mobile has about 1.2 million preorders for the iPhone, according to CNBC.



The rub here is that Cook touted that China Mobile had the fastest network in China. That point is notable since Apple devices do chew up the network a bit, but China Mobile's version of 4G LTE isn't quite complete.

Credit Suisse noted in a research report that the China Mobile's 4G network is very much a work in progress. A pricey iPhone in China doesn't have the punch on a 3G or 2G network. The analyst team at Credit Suisse noted:

While the impact of China Mobile is positive on a long-term basis, we are somewhat more cautious on the impact over the first six months of the agreement given a TD-LTE network that is still a work-in-progress.

For instance, China Mobile had 16 cities covered with LTE at the end of 2013. That footprint is fairly limited for an iPhone launch. China Mobile expects to have 340 cities covered by 4G by end of 2014.

Apple is expected to ship 55 million iPhones for the fiscal first quarter ending Dec. 31, according to Jefferies analyst Peter Misek. What's unclear is how Apple's March quarter looks. Can China Mobile offset a unit dip in developed markets where consumers are seeing smartphone fatigue?

That question may largely depend on how well Chinese consumers tolerate Apple's relatively high prices and value on a China Mobile network that needs more points of presence.

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