Saturday, December 7, 2013

iPhone Drops in China Mobile's Bucket

China Mobile Ltd. is answering the iPhone's call, but don't expect the world's largest wireless company to all of a sudden be the cool kid on the block.

News of the pact comes the day after China Mobile secured a license for a fourth-generation mobile network. This suggests that the biggest obstacle all along was China's locally developed 3G standard. China Mobile, as the state-owned wireless telephony champion, was pressed by Beijing into using the homespun standard and missed the defining device of the 3G era because of misguided technological protectionism.

The iPhone won't bring them back. It is just one coveted smartphone among many. It had 6% market share in China in the third quarter, well behind Samsung's 21%, according Canalys.

To be sure, there is latent demand among China Mobile users for the iPhone. HSBC estimates around 25 million "gray market" unlocked iPhones running on China Mobile's old 2G network.

China Mobile's user base is huge. It had 759 million mobile subscribers at the end of October compared to 276 million for second-place China Unicom. But this size reflects a strategy to target downscale users in small cities and rural areas who aren't typical iPhone adopters.

A big factor in whether the iPhone makes China Mobile money will be the level of subsidies the carrier offers iPhone subscribers. The smartphone's $700 off-the-shelf cost is too dear for the Chinese mass market. The subsidy level isn't yet public.

China Mobile's stock pays a solid 4.1% dividend yield, but is up just 12% over the past five years. Verizon yields 4.2% and is up 51%. That makes China's last big carrier to carry the iPhone not very exciting, even by the dull standards of telecommunications operators. Finally landing the iPhone won't change the picture.

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