Tech Industry

Apple, China Mobile face hurdles in effort to offer the iPhone

The two companies have been chatting about a deal to sell the iPhone to China Mobile subscribers since 2009, but apparently with little progress.

The iPhone 5.
CBS Interactive

Apple and China Mobile keep talking about providing the iPhone in China, and they keep running into the same stumbling blocks.

The iPhone is already available in China through China Unicom and China Telecom, the country's second and third largest carriers, respectively. But a deal with China Mobile, the biggest carrier, would give Apple access to 700 million more customers.

At China Mobile's Worldwide Developer Conference yesterday, company president Li Yue acknowledged that the carrier has been speaking with Apple since 2009 about a deal to sell the iPhone. A contract was even discussed last year, according to Chinese news site Sina Tech.

So, why is China Mobile still without the iPhone?

One issue is technology. China Mobile's TD-SCDMA network is not compatible with the iPhone, either the iPhone 4S or the new iPhone 5. But technology problems can often be worked out. The real holdup is more about business.

"Besides the technical issues, the business model and benefit sharing still need further discussion," Li said yesterday, according to Bloomberg.

China Mobile has reportedly been insisting on a cut of Apple's action as part of a deal to offer the iPhone. Specifically, the carrier wants a slice of any Apple Store revenue generated by its huge network of customers.

That idea hasn't gone over well with Apple, which typically doesn't like to share.

"Apple has been very open about how much profit it is taking from China, and that was bound to get somebody here thinking 'Hey, we want some of that: after all, without us, they're dead,'" David Wolf, CEO of a Chinese marketing consulting firm, told Bloomberg. "The company could find itself forced to choose between its margins and its access to the Chinese market. Apple now needs to play a deft game."

The iPhone 5 will be available this month to the 230 million customers at China Unicom and the 152 million at China Telecom. The phone already scored more than 100,000 preorders from China Unicom customers in a single day this past Monday.

But Apple is hardly a top player in China.

The company's smartphone ranking in China fell two spots in the third quarter, which means the iPhone is now No. 6 on the list of the best-selling phones.

Challenged by rival phones from Chinese vendors, Apple saw its market share in the country drop to less than 10 percent, according to IDC, as reported by Reuters. At the same time, China's smartphone shipments reached a record high of 60 million.

Selling the iPhone 5 through China Unicom and China Telecom should help recapture some of that market share. But to win more of China's huge mobile subscriber base, Apple may yet have to cut a deal with China Mobile.

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