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China Mobile Says Apple Must Discuss IPhone Benefit Sharing

Dec. 6 (Bloomberg) -- China Mobile Ltd., the world’s largest mobile-phone company by users, said Apple Inc. must further discuss with the carrier details about benefit sharing before a deal can be reached on offering the handset.

Technical issues related to the carrier’s homegrown third-generation network standard aren’t the only obstacles to reaching an iPhone deal with Apple, China Mobile Chief Executive Officer Li Yue told a developer conference in Guangzhou, according to a transcript from the company today. Apple spokeswoman Carolyn Wu declined to comment on Li’s remarks.

“Besides the technical issues, the business model and benefit sharing still need further discussion,” Li told the gathering in Guangzhou yesterday.

The iPhone isn’t available to most users in China as the Cupertino, California-based company has yet to reach an agreement with China Mobile, while its two smaller rivals both offer the handset. Nokia Oyj will sell a version of its flagship smartphone for the nation’s largest wireless carrier by the end of this month, the companies said yesterday.

China Mobile had 703 million subscribers at the end of October, including 79.3 million users of high-speed, third-generation services that give smartphones faster Internet access. Apple’s iPhone is available with the nation’s two smaller carriers: China Unicom (Hong Kong) Ltd. and China Telecom Corp., both of which sell it with a subsidy. The new iPhone 5 will begin sales with those carriers next week.

‘Pound of Flesh’

“Li’s comment suggests that China Mobile has no intention of simply gifting Apple access to its huge subscriber base without extracting a pound of flesh from Apple,” said Teck-Zhung Wong, a Singapore-based analyst with market researcher IDC.

China Mobile shares fell 1 percent to close at HK$88.85 in Hong Kong trading today. Apple yesterday fell 6.4 percent, the biggest drop since December 2008, to $538.79 at the close in New York. The decline erased $34.9 billion from Apple’s market value, the steepest loss since at least 1988, according to data compiled by Bloomberg.

China contributed revenue of $23.8 billion in Apple’s fiscal year ended in September, accounting for 15 percent of the total and up 78 percent from the previous year, Chief Executive Officer Tim Cook said last month on a conference call.

Li’s remarks suggest winning China Mobile as a customer could put pressure on Apple’s margins, said David Wolf, CEO of Wolf Group Asia, a Beijing-based marketing consulting firm

“Apple has been very open about how much profit it is taking from China, and that was bound to get somebody here thinking ‘Hey, we want some of that: after all, without us, they’re dead,’” Wolf said. “The company could find itself forced to choose between its margins and its access to the Chinese market. Apple now needs to play a deft game.”

To contact Bloomberg News staff for this story: Edmond Lococo in Beijing at elococo@bloomberg.net

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

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