Carrying 40 million iPhone users online, China Mobile forces Apple to make concessions

Facing the saturation of the high-end market and its fierce rival Samsung, Apple, which has lost the protection of Jobs-style innovation, took three measures to reverse its declining trend: First, it paid more attention to the Chinese market. On September 20th, the iPhone 5S/5C would be released and sold simultaneously in China for the first time, and Chinese carriers would also enter the first-release lineup of the iPhone for the first time. Second, it launched a mid-range iPhone 5C, reportedly priced at $399, to expand its market share. Third, finally, it was going to cooperate with China Mobile, which has 700 million users, to sell the TD-LTE-supported iPhone contract phone. Of course, this would have to wait until the official issuance of China's 4G license, expected not later than November.

Although these moves were filled with the aura of a loser and did not conform to Apple's usual arrogant demeanor, they were indeed beneficial, especially the cooperation with China Mobile.

Can China Mobile acquire 70% of iPhone users without spending a penny, shocking even Apple?

How powerful is China Mobile? According to internal data, by the end of last year, the number of iPhone users on China Mobile's network had exceeded 30 million, accounting for 80% of all iPhone users, while China Telecom and China Unicom, which spent a large amount of subsidies, had only 1.7 million and 7 million iPhone users respectively during the same period. So far, the number of iPhone users on China Mobile's network has reached 42 million households, surpassing the combined sales of AT&T and Verizon, the two major carriers in the United States. Please note, the key word here is that these 40 million users received no subsidies at all. Imagine, if China Mobile were to offer subsidies, the market scale would be quite considerable.

What does this mean for Apple? In the third quarter of this year, the sales volume of the iPhone was 31.2 million units. Considering that Apple has over 280 carrier partners, the energy of China Mobile alone could exceed this figure in a year. More importantly, in the third quarter, Apple's global market share declined generally, with revenue from the Greater China market dropping by 14% year-on-year. In the previous quarter, the ranking of the iPhone in the Chinese market was even lower than Xiaomi, with its share dropping from 9% in the same period of 2012 to 4.8%. Cooperation with China Mobile will undoubtedly greatly improve Apple's situation in the Chinese market and even globally.

In comparison, Apple's desire for cooperation at this point is much greater than that of China Mobile. In fact, during the 3G era, China Mobile's demand for the iPhone was almost zero, as mentioned earlier, it easily captured more than 70% of iPhone users without cooperation. China Mobile's real need for the iPhone is TD-LTE, and China Mobile needs to quickly make up for the reputation gap in 3G through the star effect of the device. And Apple also needs to seize the opportunity of 4G, where there are more strong competitors eager to enter the market.

Therefore, although rumors of cooperation between the two parties have been circulating many times, the real contact and negotiation should have started in March 2012. At this point, China Mobile had already completed the first phase of the TD-LTE scale trial, verifying the feasibility of the network, but the biggest problem remained the terminal devices.

China Mobile may require these preferential policies with its user scale

Starting from March 2012, China Mobile and Apple began discussions on the issue of cooperation. Soon, Apple agreed to customize a TD-LTE CSFB (voice fallback) mobile phone for China Mobile and support the five-mode ten-frequency that China Mobile hoped for. This project was named "Tiger Project" and was highly confidential. With Apple's active cooperation, the "Tiger Project" successfully made its first call on the Hangzhou TD-LTE test network at the beginning of the year.

But merely making a call is obviously not the focus of the "Tiger Project". In the past, the contracts signed between Apple and carriers were truly humiliating "unequal" treaties, such as no carrier logos allowed on any product or packaging, no pre-installed carrier services, carriers had to commit to sales volumes and bear all costs of publicity, promotion, and even after-sales service, Apple could monitor the sales behavior of carriers in real-time, and irresponsibly cause insufficient supply, etc. In short, carriers were like having a special sales right for a scarce commodity, everything depended on Apple's attitude.

However, the commander of the "Tiger Project" thought differently. China Mobile clearly understood how many chips it held and would absolutely not completely submit to Apple like other carriers. If the negotiations went smoothly and Apple was pragmatic enough, the following aspects might see breakthroughs in China Mobile's iPhone contract phones:

1. China Mobile elements, including the 4G brand and China Mobile logo, would appear more frequently on the iPhone's outer packaging and related promotions;

2. Pre-installation of China Mobile's own services, such as MM App Store, which would likely appear on the mobile version of Apple;

3. Not committing to give the most favorable package treatment to the iPhone, but this would be difficult, Apple would probably insist. For instance, the China Telecom version of the iPhone 5 was cheaper than the China Unicom version because Apple found out that one of Samsung's models had a more favorable package compared to China Telecom's iPhone package, thus mercilessly reducing China Telecom's profit margin to ensure sales;

4. Changing the situation where all after-sales services for the iPhone contract phones were fully compensated and repaired by the carrier;

5. In market promotion, China Mobile would not blindly invest based on Apple's requirements, such as continuing heavy TV advertising for the iPhone 4S when it had already become a common sight on the streets.

As for the other two carriers, according to understanding, they should not have revised the contract terms. It is unknown how Apple could balance the interests of other partners if it made concessions to China Mobile. Moreover, with the release of new flagship models from Samsung and others, and the extended time window, what impact would this have on the China Mobile version of the iPhone? Apple needs to be more mentally prepared. It can be foreseen that, to maximize efforts to win over and please China Mobile, the new iPhone will loudly emphasize the LTE feature!

In addition, although this cooperation is already set in stone, strangely, there is no sign within China Mobile of entering actual operations yet. Generally speaking, operating the iPhone involves a lot of tedious work behind the scenes, including establishing a nationwide IT system and training front and back-end personnel. If these works have not started yet, it is hard to imagine that everything could be ready by November. There is another possibility: China Mobile’s confidentiality work is simply too good!