China Mobile Skirts Apple to Add 5 Million IPhone Users: Tech

China Mobile Ltd. (941) failed to get Apple Inc. (AAPL)’s cooperation to make iPhones for its proprietary 3G network. That didn’t stop the carrier from signing up almost 5 million users of the smartphone in four months. Its trick: Offer Wi-Fi instead.

The world’s biggest carrier by subscribers touts the iPhone 4 in advertisements on the Beijing subway and in its shops, and offers gift cards worth as much as 2,800 yuan ($441) to customers prepaying for Wi-Fi service to surf the Web. The company plans to roll out 1 million new Wi-Fi hotspots across China in the next three years.

The strategies helped China Mobile more than double its iPhone users to 9.5 million from May to September, Chairman Wang Jianzhou said. The company widened its lead in total subscribers over China Unicom (Hong Kong) Ltd., the only carrier approved by Apple to sell the iPhone in the world’s largest mobile-phone market.

“China Mobile is trying to hold on to their high-end users,” said Sandy Shen, a Shanghai-based analyst at research firm Gartner Inc. “They are trying to make up for the fact they don’t have iPhone in their portfolio.”

IPhone users can’t connect to China Mobile’s 3G network because Apple hasn’t produced a compatible version. The system, known as TD-SCDMA, isn’t used outside China.

Meeting Steve Jobs

The government picked China Mobile to use the network because its market dominance was supposed to help promote the technology. Wang said in a September 2010 interview that he met with Steve Jobs earlier that year to discuss making an iPhone for the network, and those talks failed.

The iPhone does conform with the standards used by China Mobile’s 2G voice and Wi-Fi data networks. IPhone owner Lynnerd Lang, a website designer in Beijing, said there’s enough Wi-Fi coverage that he doesn’t need to switch to China Unicom’s 3G network.

“I don’t think 3G is really necessary to enjoy it,” Lang, 22, said. “If I need to use the Internet, there is Wi-Fi. If I want to download an app, I do it on my MacBook at home and sync it to the phone.”

Customers receive a gift card, which can be spent on voice or data services, by buying the iPhone 4 at any of five partner retailers and paying for 2,400 yuan worth of Wi-Fi service, according to China Mobile posters.

Subway Ads

“They realize this is working,” said Paul Wuh, an analyst at Samsung Securities Co. in Hong Kong. “They have 10 million people who were willing to buy an iPhone without any subsidy and use it on the 2G network, so now they are just encouraging that by offering this Wi-Fi package.”

Subway ads list the iPhone 4 first among eight devices covered by the promotion, using a yellow font twice as large as the black font used for Samsung Electronics Co.’s Galaxy; Nokia Oyj (NOK1V)’s T7; ZTE Corp. (000063)’s U830 and Huawei Technologies Co.’s T8300.

Rainie Lei, a Hong Kong-based spokeswoman with China Mobile, declined to elaborate on the ad campaign.

China Unicom, whose 3G network uses the international WCDMA standard, doesn’t break down how many subscribers use the iPhone. Sophia Tso, the carrier’s Hong Kong-based spokeswoman, declined to comment.

Carolyn Wu, a Beijing-based spokeswoman with Apple, declined to comment on China Mobile’s iPhone promotion.

“We have only one iPhone partner in China: China Unicom,” Wu said.

Doubling Its Lead

China Mobile has 43.2 million 3G users compared with 30.2 million for China Unicom. That gap of 13 million is more than double the subscriber lead of 4.7 million it held in September 2010.

China Mobile shares are down 3.3 percent this year, while China Unicom’s are up 45 percent, driven mainly by investors betting on growth from the latter company’s 3G services.

China is the world’s largest market with 952 million mobile-phone users, yet only 11 percent have made the switch to 3G. China Mobile has added more 3G users than China Unicom every month this year.

Using rebates to attract and retain iPhone users will come at a price for China Mobile, said Kelvin Ho, an analyst with Yuanta Securities Co. in Shanghai. The maximum cash back of 2,800 yuan is about 62 percent of the 4,548-yuan price tag for a 16-gigabyte iPhone 4 at Apple’s online store in China.

‘Tiny’ Wi-Fi Returns

“The competition is heating up, and China Mobile can’t avoid spending on handset subsidies,” Ho said. “Wi-Fi does definitely help them retain customers, but what they need to do is move traffic from 2G to 3G, not to Wi-Fi.”

Wi-Fi’s returns are “very, very tiny” compared with 3G, Ho said. As a result, China Mobile will see “very slow growth in earnings” in the next two years, he said.

China Mobile’s subscribers with iPhones use twice as much data each month as its other smartphone subscribers, and three times the company’s average, according to estimates by Wuh.

China Mobile on Oct. 20 reported third-quarter profit gained 3.7 percent to 30.7 billion yuan, missing analyst estimates, as costs to attract smartphone users reduced margins.

China Unicom said Oct. 27 that net income rose 21 percent to 1.61 billion yuan, which missed the 1.73 billion-yuan average of three analysts.

China Mobile’s parent company, China Mobile Communications Corp., is now testing a new 4G network using the international TD-LTE standard. Wang said last month the company received a “positive answer from Apple” that it would make an iPhone for it.

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

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