Apple iPhone Deal a Good One for China Mobile

December 23, 2013 by Paul Ausick

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Source: Thinkstock
The weekend deal between Apple Inc. (NASDAQ: AAPL) and China Mobile Ltd. (NYSE: CHL) has been generally interpreted as a boost for Apple — and it is. Not having its popular iPhones available at the world’s largest wireless carrier may not have been the best marketing move the Cupertino company ever made.

While the deal was important for Apple, it was probably more important to China Mobile, a company that is majority-owned by another company that is wholly owned by the Chinese government. The reason for the lack of iPhones on China Mobile’s network has long been the carrier’s slow adoption of a compatible 3G network. Of China Mobile’s 763 million customers, only 181 million were 3G subscribers at the end of November. That means 582 million subscribers were on the company’s 2G networks. Does anyone in the United States or Europe remember the 2G network? Didn’t think so.

The agreement between Apple and China Mobile was delayed by this lack of network structure. Apple needed a commitment from the Chinese firm that it would build out its 4G network before iPhones would be available. Apple honchos, likely led by the late Steve Jobs, did not want to sell iPhones on a network that either could not support them or would make them look bad and not worth the premium price. Plus, Apple would have had to make a version of the iPhone that was compatible with China Mobile’s 3G network. The company concluded that it was giving up only a relatively small fraction of the 181 million China Mobile 3G subscribers who could afford to pay for an iPhone and waited until China Mobile got serious about building decent networks. So, in fact, it was a smart marketing move for Apple.

According to Moody’s Investors Service, the weekend deal is a credit positive for China Mobile, and the research firm expects China Mobile to have 350 million 3G (TD-SCDMA) and 4G (TD-LTE) customers by the end of 2014. That is nearly double the number of current 3G subscribers, and Apple almost certainly will pick up a significant percentage of those new customers. By the end of 2013, China Mobile will have 4G service available in Beijing, Shanghai and 14 other major cities. By the end of 2014, 4G coverage will be available in 340 Chinese cities.

China Mobile should be sure to send the folks at Apple a Christmas card this year. Without the prodding from the Cupertino legions, the iPhone probably still would not be available on the company’s ancient network.