“Can you afford it?” rather than regulatory barriers now join the issues for entering the China market

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 China Mobile suspend talks with Apple over selling iPhone in China

China Mobile has announced they have just broken off talks with Apple over the sales of the iPhone into the Mainland China market. The deal’s bone of contention essentially is over the industry practice of mobile operators giving equipment suppliers a cut of the traffic generated from use of their phones, and Apple see the iPhone as a premium product. In Europe, T-Mobile of Germany, Orange of France and 02 in the UK, pay Apple a 10 percent cut of the revenue collected. That includes calls and data transmission made from use of the iPhone, and is not an uncommon phenomena in the world of international telecommunications, where global service providers often take a cut of revenues to assist with the R&D costs of getting the product to market – and enhancing the network usage. iPhone, somewhat uniquely, is also poised to enter the Japanese market – a rare occurrence for foreign handset manufacturers – and make arrangements with DoCoMo to market and sell the iPhone in Japan. Again, the same deal – 10 percent of the network revenues, that go via our phones, please.

China, however, sees things differently. With Apple’s global sales targets of the iPhone this year being 10 million handsets, China Mobile are looking at the strength of their subscriber base – 363 million of a total of 522 million mobile phone subscribers in the PRC. That’s a strong position to hold when negotiating with handset suppliers, and Apple’s request for 10 percent of revenues has just led to China Mobile suspending the talks – possibly opening the door for China Unicom – China Mobile’s smaller competitor – to steal a march over its larger rival by offering exclusivity over iPhone in China. But in this respect, it would have to give up revenues.

The interesting backdrop to all this is that as China now flexes it’s sheer numbers of people as an asset and uses it as a financial weapon in negotiations – can your business afford to be in China given the lower commission you’ll receive? This will be the case in monopoly situations. Or, has China Mobile shot itself in the foot with Apple and missed a chance to give a boost to additional subscriptions by tying up with the iPhone?

One thing is for sure. The iPhones you see at present in China have all been purchased, individually, overseas until Apple can get it to market and either take a haircut on revenue sharing or go with a smaller operator.

The irony of the whole issue is of course that the iPhone is assembled in China for global sales.