Apple usually is in the cat-bird seat when it comes to negotiations. The brand’s allure, coupled with billions in cash and a handset responsible for rocketing smartphone sales has made the iPhone maker a brutal negotiator. Now comes word Apple may have made concessions in order to get the world’s largest carrier on its team.
Just what Apple had to concede to gain support from China Mobile varies from a low-priced iPhone 5C to even a slice of some profits. While the latter possibility is rather far-fetched, observers agree: the Chinese carrier “has all the power” in these negotiations…
Put yourself in Apple’s position for a moment.
China is a huge market.
1.33 billion people and growing – it’s huge.
Both brand name and homegrown Android handsets are quickly gobbling up the market for inexpensive devices. Watching its share slide, Apple needed both China Mobile for volume and the iPhone 5C for taking back some of the sales of cheap smartphones.
Notably, China Mobile has 700+ million subscribers, more than AT&T and Verizon combined.
“In this relationship, China Mobile has all of the power,” Edward Zabitsky, CEO of ACI Research tells Bloomberg. “China Mobile will offer the iPhone as soon as Apple gives in on the price,” he adds.
The pressure on Apple is even greater to reel in an agreement with China Mobile given a press conference scheduled in Beijing for September 11 – one day after the iPhone 5S and likely the plastic mid-tier iPhone 5C is set to be unveiled over in the United States.
An appearance without such an agreement would put Apple shares in a tailspin – just as talk that a China Mobile pact was inevitable sent Apple’s stock higher. Of course, the mid-range iPhone 5C and China Mobile is a win-win scenario for both technology giants.
But just what sort of concessions might Apple be putting on the table?
Chart via Morgan Stanley analyst Katy Huberty.
Two of the most likely include a lower-priced handset and support for China Mobile’s nascent 4G network. As Bloomberg notes, when the iPhone 4 was released in China, the handset was not compatible with either the Chinese consumer’s wallet or China Mobile’s 3G network.
To prevent iPhone users flooding to China Unicom, the nation’s largest carrier handed out discounts worth $441 and created a Wi-Fi network so the older 2G network would not be swamped. So, we are likely to see a 4G-compatible handset and one where both carriers and consumers pay less.
“Keeping devices affordable is critical for China Mobile,” according to today’s report. Among China Mobile’s customers are millions of poor customers living in the nation’s huge rural landscape, a Standard & Poor’s analyst said.
Negotiations between Apple and China Mobile have been a long-running saga.
In 2010 and 2011, the two held talks, at one point China Mobile’s former Chairman saying he’d received “a positive answer” to his call for better cooperation.
By 2012, China Mobile, under new leadership, took a more strident tone, saying Apple needed to be more flexible on “the business model and benefit sharing”. Since that time, Apple CEO Tim Cook has twice traveled to China for talks with the carrier.
But that may not be the end of the concessions Apple has to make.
To land China Mobile, Apple may have to hand over a portion of its profits from the App Store and other revenue generated by the iPhone – and that may be the most bitter pill Apple must swallow to win back China.