Apple Inc. (AAPL) Formally Launches iPhone on China Mobile; Subsidy War Likely


Apple Inc (NASDAQ:AAPL) formally launched the iPhone on China Mobile Ltd (ADR) (NYSE:CHL) at the Chinese carrier’s flagship store in Western Beijing on Friday.

Apple CEO Tim Cook and China Mobile Chairman Xi Guohua signed and handed out iPhones to a small number of customers during the launching. Cook told customers that Apple Inc (NASDAQ:AAPL) and China Mobile Ltd (ADR) (NYSE:CHL) is “just beginning to deliver the best experience in the world” that day.

Last month, the companies signed a multi-year agreement to bring iPhone to the largest mobile network worldwide with more than 760 million customers.  The partnership is important for Apple Inc (NASDAQ:AAPL) to boost its dwindling market share in China due to strong competition particularly from Samsung Electronics Co. Ltd (KRX:005935) and Chinese smartphone manufacturers such as Xiaomi Tech.

During the third quarter last year, a study from Canalys research firm showed that Apple Inc (NASDAQ:AAPL) ranked fifth with 6% market share in China. Samsung Electronics Co. Ltd (KRX:005935) is the market leader in the country with 21% market share.

Michael Clendenin, managing director at RedTech Advisors in Shanghai believes that the arrival of the iPhone at China Mobile Ltd (ADR) (NYSE:CHL) will not result to pricing competition between competing carriers. However, he thinks that a “subsidy war” is likely to happen.

“I don’t see a price war coming where Apple is engaged in the war, but I do think you’re going to see a subsidy war coming,” said Clendenin. He added, “China Mobile, if they’re not making their targets on sales for these phones, they’re going to increase the subsidies… It’s like airlines: the other guys will fall like dominoes, so China Unicom will do it and China Telecom will do it.”

China Mobile Ltd (ADR) (NYSE:CHL) received more than one pre-orders of iPhones before its official opening sales on Friday. Analysts projected that the Chinese carrier will be able to sell 12 million units of iPhone this year.

Canalys analyst Nicole Peng said China Mobile Ltd (ADR) (NYSE:CHL) is concentrating on attracting premium customers because it is concerned about the effect of heavy spending on iPhone subsidy to its profitability. The carrier is offering a free iPhone to customers willing to sign up for its most expensive plan.