Apple Said to Be Close to Clinching Carrier Holdouts
Apple Inc. (AAPL) is on the verge of clinching agreements with two of the biggest holdouts to selling its iPhone, China Mobile Ltd. (941) and NTT DoCoMo Inc. (9437), opening a route to hundreds of millions of new customers.
On the eve of an event on Sept. 10 to unveil new iPhones, Apple and China Mobile are near a deal for the world’s largest wireless carrier to offer the device, said a person with knowledge of the matter, who asked not to be identified because the discussions are private. Apple is also close to an agreement to distribute its handset through Japan’s largest mobile carrier, NTT DoCoMo, people with knowledge of the situation have said.
Any final deals will bust loose at least 800 million new consumers for the iPhone, with China Mobile boasting 740 million subscribers and NTT DoCoMo at about 62 million, according to data released by the carriers. Those would be welcome customers for Apple, which is combating slowing sales growth for its flagship product amid competition from Samsung Electronics Co. (005930) and makers of cheaper handsets.
“This is a very big deal for Apple,” said Brian Marshall, an analyst with ISI Group in San Francisco. “Apple’s iPhone growth has really slowed down.”
The agreements would end years of negotiations where the carriers balked at Apple’s terms, including the costs of subsidies needed to make the iPhone affordable for customers. Apple is set to show a lower-cost iPhone at the Sept. 10 event, a person with knowledge of the matter has said.
Trudy Muller, a spokeswoman for Apple in Cupertino, California, declined to comment on China Mobile yesterday. Zhang Xuan, a Beijing-based spokesman for China Mobile’s parent company China Mobile Communications, didn’t answer calls to his mobile or office numbers outside of normal business hours.
Natalie Kerris, a spokeswoman for Apple, also declined to comment on talks with NTT DoCoMo yesterday. DoCoMo said in a statement yesterday, “We’re not the source of information and nothing has been decided at this point.”
An iPhone slowdown has broad consequences for Apple, which gets more than half its sales from the device. The company sold 31.2 million iPhones last quarter, down 17 percent from the prior quarter. Absent new products, profit has shrunk the past two quarters. The stock has fallen around 6.4 percent so far this year, compared with a 16 percent gain for the Standard & Poor’s 500 Index, as investors question whether Apple can boost sales.
While Apple is preparing to a ship a lower-cost iPhone to China Mobile, a deal won’t be announced at Apple’s Sept. 10 event, or at a follow-up event in Beijing on Sept. 11, said a person familiar with the announcements. It’s unclear if a DoCoMo agreement will be announced on Sept. 10.
A deal with China Mobile has been in the works for years. China is one of Apple’s largest markets, yet sales there fell 14 percent last quarter as new local smartphone vendors like ZTE Corp. (000063) and Xiaomi Corp. took market share by offering lower-cost alternatives to the iPhone.
China is playing an increasingly important role in the global smartphone market, with sales there exceeding North American and Western Europe combined, according to Linda Sui, an analyst with Strategy Analytics.
In the December quarter, China Mobile may order 5 million iPhones, then 40 million more in 2014, according to Marshall.
“China is a huge opportunity for Apple,” Chief Executive Officer Tim Cook said in July.
The Wall Street Journal earlier reported that Apple was preparing to ship iPhones to China Mobile.
Apple also has room for growth in Japan. The country accounted for $2.54 billion of Apple’s $35.3 billion in sales last quarter, according to data compiled by Bloomberg.
China Mobile CEO Li Yue said late last year that a deal must be mutually beneficial to both companies, in a reference to Apple’s strict carrier terms. DoCoMo CEO Kaoru Kato said in February that Apple’s closed ecosystem makes it harder to integrate into DoCoMo’s plan to link devices and services.
Not having the iPhone comes with a cost as well. DoCoMo has been adding fewer subscribers than rivals KDDI Corp. (9433) and SoftBank Corp. (9984), partly because it doesn’t offer the iPhone. DoCoMo added 43,000 users in August, compared with 209,200 at KDDI and 250,300 for SoftBank.
IPhone users are typically more profitable to wireless carriers because they use their phones more for data-intensive tasks such as searching the web and watching videos, said Sui of Strategy Analytics.
“Operators can definitely make more money from iPhone users,” she said.
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