By Loretta Chao, Lorraine Luk and Aaron Back
China Unicom (Hong Kong) Ltd. (CHU) announced a deal with Apple
Inc. (AAPL) to sell iPhones in China starting later this year,
bringing the popular device to the world's largest mobile market
for the first time.
The highly anticipated release of the iPhone in China - which
has 687 million wireless subscribers, more than twice the
population of the U.S. - is expected to be a boost for both Apple
and Unicom, one of three Chinese state-owned telecommunications
carriers. Still, the two companies face challenges to realizing the
iPhone's potential in China, including competition from similar
devices, and the companies left several key questions about pricing
and other details unanswered Friday.
Under the three-year deal, iPhones will start to be sold in
China in the fourth quarter of this year. Unicom won't share
revenue with Apple, as some operators do, and it will purchase the
handsets from Apple on a wholesale basis and resell them to
consumers, the Chinese company said. Unicom will offer a subsidy to
customers to lower the iPhone's price, Chairman and Chief Executive
Chang Xiaobing said at a news briefing, but he didn't elaborate on
how much the subsidy would be. An Apple spokesman confirmed the
Unicom deal, but declined to give further details.
The Wall Street Journal reported Thursday that the iPhone's
launch in China was forthcoming. As reported, the Chinese version
of the iPhone, at least initially, will be stripped of its Wi-Fi
wireless Internet capability to comply with government
regulations.
Unicom, which had 141 million wireless users at the end of July,
hopes the iPhone will attract high-spending customers, who will
boost its earnings, and give it a leg up on dominant carrier China
Mobile Ltd. (CHL), which has more than triple Unicom's subscriber
base. The iPhone deal comes alongside Unicom's rollout of a
"third-generation," or 3G, network that will enable functions such
as wireless video and high-speed surfing. Unicom's 3G network is
the only one among three in China that is currently technologically
compatible with the iPhone.
Chang said official launch of the network will come Sept. 28,
and will cover 335 cities by the end of this year. Unicom President
Lu Yimin said the company aims to take more than one-third of
China's 3G mobile market next year, with 3G users expected to make
up 20% of China's mobile market in 2010.
Unicom's iPhones are likely to face plenty of competition - not
least from iPhones sold elsewhere that don't lack Wi-Fi. Research
firm BDA China Ltd. estimates there are as many as 1.5 million
iPhones already in use in China that have been bought overseas or
through the country's robust gray market, which is unlikely to
disappear.
Meanwhile, several devices running Google Inc.'s (GOOG) Android
operating system are also expected to hit the market by the end of
the year, including at least one by Taiwanese phone maker HTC Corp.
China Mobile has announced plans to release 3G phones with
international partners such as Nokia Corp. (NOK) and Samsung
Electronics Co. (SSNHY). In addition, China Telecom Ltd. (CHA), the
country's third wireless carrier, is in talks with Research In
Motion Ltd. (RIMM)to offer its Blackberry handsets in China, and
with Palm Inc. (PALM), maker of the Palm Pre handset.
By the end of this year, China "will be a very different
competitive environment than [Apple] would have faced a year ago,
or even six months ago," said David Wolf, chief executive of Wolf
Group Asia, a Beijing-based marketing strategy firm.
Still, Chinese users greeted Friday's announcement with
enthusiasm. "I have been thinking of buying an iPhone since early
this year," said Wei Wei, a 27-year-old brand manager at a
technology company in Beijing. "There are so many great
applications in the [Apple] App Store, and more Chinese IT
[information-technology] companies are working on iPhone apps as
well." Wei said the disabled Wi-Fi function greatly reduces the
phone's appeal, but she would still prefer getting one through
Unicom because it's "genuine."
Analysts said the Unicom iPhone's success will hinge largely on
offerings in the App Store, where users can download software
applications for the device. Updating the iPhone software is
currently inconvenient, and very few of the applications available
now are tailored to the Chinese market.
Pricing will also be an issue. Imported iPhones currently sell
on the gray market for as little $680, and those have Wi-Fi.
Unicom's challenge will be to price the iPhone at a level that is
competitive but still doesn't hurt its average revenue-per-user,
which fell to 41.7 yuan in the six months ended June from 43.6 yuan
a year earlier. Unicom said Friday its net profit in the first half
of 2009 plunged 45% from the same period last year to 6.62 billion
yuan ($970.4 million), dragged down by weakness in its fixed-line
business and tougher competition.
"The iPhone is not going to be a slam-dunk hit for Unicom," said
Wolf. "But if Unicom and Apple can work together to put together an
experience that is so much better than the cracked iPhones, they'll
do great over time."
-By Loretta Chao, The Wall Street Journal;
loretta.chao@wsj.com
-By Lorraine Luk, Dow Jones Newswires;
lorraine.luk@dowjones.com
-By Aaron Back, Dow Jones Newswires; aaron.back@dowjones.com