Apple Strikes Deal to Bring iPhone to China Mobile

Apple's stock rose 3 percent in morning trading on Monday, a day after the company announced a long-anticipated agreement to bring the iPhone to China Mobile, the world's biggest phone company.

The deal has the potential to boost iPhone sales in a market where Apple Inc. faces intense competition. But even with China Mobile Ltd.'s vast state-owned network, marketing power and more than 750 million mobile accounts, the iPhone has enormous challenges to overcome in the world's most populous nation.

Apple's smartphone is already available in China through two smaller carriers, and although it is popular with well-heeled Chinese customers, the iPhone is losing market share to lower-priced smartphones from Samsung and local brands.

The iPhone 5S and 5C will go on sale in Apple and China Mobile stores beginning Friday, Jan. 17. China Mobile customers can register for phones starting Wednesday.

The companies didn't announce pricing or the terms of the agreement.

The deal comes a month before China's Lunar New Year holiday in late January, a big gift-buying season. That "will provide an immediate boost to Apple's share in China," said analyst Nicole Peng of Canalys, a research firm.

Apple's stock rose $15.90, or 3 percent, to $564.92 in Monday's morning trading.

Forecasts of possible increased iPhone sales under a deal with China Mobile vary widely, from 10 million to 40 million. A key issue is whether it leads to additional sales or only prompts existing iPhone owners to switch to China Mobile.

The iPhone will help China Mobile promote its new fourth-generation, or "4G", network that received government approval this month. But analysts say Apple needed the agreement more than the Chinese carrier. That gave China Mobile leverage in negotiations over how to split costs, which for the high-priced iPhone usually includes subsidizing handset sales.

The iPhone faces tough competition from less expensive smartphones running Google's Android software. Collectively, Android phones far outsell Apple's iPhone.

Apple CEO Tim Cook told the official Xinhua News Agency in January that he expects China to surpass the United States as its biggest market. About 50 million iPhones have been sold in China in the past 2 1/2 years, according to analyst estimates.

Although China Mobile has 750 million customers, a survey by Bernstein Research found that some China Mobile customers use smaller carriers for data service. Apple already has agreements with China Telecom Ltd. and China Unicom Ltd., which have about 455 million mobile accounts.

Apple's share of China's smartphone sales declined to 6.2 percent in the third quarter from 7.9 percent a year earlier, according to Canalys. Samsung's share expanded from 14.1 percent to 21.2 percent over the same period.

The iPhone once was so popular with Chinese gadget fans that eager buyers in Beijing waited overnight in freezing weather for the 4S model. But that excitement had faded by this September's release of the 5S. Customers said it offered too few improvements.

Samsung's advantages include being able to offer carriers a mix of phones priced as low as 1,000 yuan ($150) while Apple competes only in the highest market tier, according to Wang.

Any boost Apple gets by becoming China Mobile's new high-end phone could quickly fade, he said.

"We expect this advantage can only last three months and Samsung will bring out its next flagship model soon," said analyst James Wang of Canalys.

As for subsidies, Unicom pays 2,500 yuan ($410) of the iPhone's 5,499 yuan ($900) cost in exchange for a customer signing a two-year contract to pay a minimum of 186 yuan ($30) per month.

Analysts say China Mobile will have to match those terms to achieve significant sales.

China Mobile wants to have the world's largest 4G network. It plans to have 4G services available in 16 cities by the end of 2013 and to provide coverage for 340 cities by the end of 2014.

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McDonald reported from Beijing.