How China deactivated the iPhone charm offensive

A launch blunted by local issues

How China deactivated the iPhone charm offensive
This is the first in a series of guest column written by mobile expert Natalie Chandler looking at the Chinese mobile market.

Following the October 30 launch of the iPhone in China, news quickly circulated that Apple's beacon of cool had failed to set the market alight.

The US company's Chinese partner, operator China Unicom, had sold just 5,000 iPhones in four days, while etailer Taobao.com - the only non-Unicom site to sell official handsets - reportedly shifted a mere five phones in its first fortnight of sales.

Last week Unicom - the country's first carrier to roll out 3G, and second largest by subscribers next to behemoth China Mobile - released slightly more optimistic figures.

Despite a sluggish start, handset sales cleared 100,000 in the six weeks following launch. It’s not to be sniffed at, provided you don't cast your mind back to the US circa 2007 when Apple sold 270,000 iPhones in its first 30 hours.

Still, given Unicom chairman Chang Xiaobing's bullish announcement in early November that he planned to grow 3G customers by 1 million a month, it's widely speculated the operator will have to revise its iPhone strategy if it's to meet its own expectations of selling five million handsets in three years.

The price isn't right

Top of the revision list may well be price. In the non-carrier subsidised Chinese market, a 32 GB iPhone 3GS will set customers back the equivalent of about £630 [$1,030], while even the lower-end 8 GB iPhone costs £450 [$735].

On top of restrictive pricing, the wi-fi function iPhone users know and love has been deactivated to comply with Chinese Ministry of Industry and Information Technology regulations, although Unicom hopes to offer a wi-fi-enabled iPhone in early 2010.

Wang Yuquan, a senior consultant from research firm Frost & Sullivan, said the lack of wi-fi function would spur grey market iPhone sales, already estimated at around 2 million units in China. A wi-fi-enabled 32 GB iPhone 3GS retails on the grey market for about £490 [$800].

Ironically however, Unicom's network is currently the only one in China capable of supporting the iPhone's 3G functions, so many of these grey users will probably switch to the operator to get the most out of their handsets.

The local advantage

In an article for Forbes, China Market Research Group MD Shaun Rein speculated Apple underestimated the importance of the operator they partnered with for the Chinese iPhone launch - reportedly choosing Unicom after negotiations with China Mobile broke down over revenue share. With around 500 million subscribers, China Mobile is perceived to have better connectivity in regional cities, and more active mobile content consumers.

And, while the Apple-China Mobile negotiations have since resumed, the operator has made it clear it will be business as usual with or without the iPhone, recently announcing plans to launch its own device, the Ophone, and boasting 400,000 downloads on its new app store, Mobile Market, in two weeks.

Of course, Apple has remained schtum over the Chinese performance of its iconic smartphone. However, its previously bumpy ride as a retailer in the territory should have left it with few illusions as to how challenging it can be for foreign companies to succeed in the Middle Kingdom, regardless of whether the rest of the world dances to its tune.

Natalie has worked in mobile since 2003, launching services throughout Asia, Europe, Africa and North America. Based in London, she currently works as a digital development consultant.

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