China Mobile Ltd. (941) started selling the iPhone today after six years of negotiations with Apple Inc. (AAPL), offering a base of 763 million subscribers to a smartphone maker trying to boost lagging share in the world's biggest market.
At China Mobile's flagship store in western Beijing, about a dozen customers came in to look at the iPhones on display. Wang Dongli, a 26-year-old communications executive, has been an Apple customer since the iPhone 3. She was checking out China Mobile's service plans, which offer a free device for a minimum plan of 588 yuan ($97) a month for two years.
"I'm just here to look," Wang said. "If it's appropriate, maybe I'll buy."
China Mobile is counting on the device to help attract high-end users to its new fourth-generation wireless network that began service last month. Apple is banking on the agreement to help it climb from fifth place in China's smartphone market behind Samsung Electronics Co. and three domestic makers.
At the China Mobile store in Shanghai City Center, the window ads promoted devices by Samsung, HTC Corp. and China Wireless Technologies Ltd. There were no iPhone ads, and only about four customers when the outlet's doors opened.
China Mobile and Apple first started talks on iPhone distribution in November 2007, the same year Apple unveiled the devices. The two finally reached agreement last month, and the carrier began taking pre-orders for the iPhone online Dec. 25.
Apple's Share
The nation's two smaller carriers already offer the device. China Unicom (Hong Kong) Ltd. (762), the nation's second-largest carrier, began offering the iPhone in November 2009 and China Telecom Corp. (728) followed in March 2012.
China Mobile's share of the nation's wireless users stood at 72 percent when Unicom introduced the iPhone. That had declined to 62 percent as of October.
Likewise, Apple has been under pressure from low-cost devices. Apple's share of China's smartphone market was 6 percent in the third quarter, down from 8 percent a year earlier and compared with 10 percent in the third quarter of 2011, according to data from market researcher Canalys.
China Mobile may sell about 10 million iPhone units this year, according to estimates from Tucker Grinnan, a Hong Kong-based analyst with HSBC Holdings Plc, and James Yan, a Beijing-based analyst with market researcher IDC.
IPhone Subsidies
China Mobile on Jan. 15 said pre-orders for Apple's iPhone had reached about 1 million units ahead of sales in the carrier's outlets today.
The carrier is offering a free iPhone only with its most expensive data plan. The iPhone without a contract costs 5,288 yuan, it said. China Mobile users on a two-year contract who pay 188 yuan a month can get the iPhone at a reduced price of 3,788 yuan.
China Mobile is trying to avoid the experience of China Telecom, which reported a 10 percent drop in net income in its first year of offering the device due to higher subsidies.
"China Mobile is focusing on attracting the premium customers," said Nicole Peng, a Shanghai-based analyst with Canalys. "They are concerned that heavy subsidy spending on the iPhone will impact their profitability."
China Mobile may spend 50 billion yuan on iPhone subsidies this year, according to HSBC's Grinnan.
The carrier is projected to have had a 2 percent drop in net income last year, its first decline in 14 years, according to the average estimate of 23 analysts in a Bloomberg survey. That will widen to a 7 percent drop this year, its first back-to-back annual profit declines as a public company, according to the Bloomberg survey.
To contact Bloomberg News staff for this story: Edmond Lococo in Beijing at elococo@bloomberg.net
To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net
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