Apple China Mobile launch could spark costly subsidy war

Fri Jan 17, 2014 5:58am EST
 
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By Paul Carsten

BEIJING (Reuters) - Apple Inc is finally launching its iPhone on China Mobile Ltd's vast network on Friday, opening the door to the world's largest carrier's 763 million subscribers and giving its China sales a short-term jolt.

Underlining how much the launch means for Apple, Chief Executive Tim Cook was on hand as the carrier's flagship store opened in Beijing's financial district. With China Mobile Chairman Xi Guohua alongside, Cook gifted signed iPhones to a handful of customers and posed for pictures.

The long-awaited deal could trigger a limited turnaround for Apple, whose fortunes have wavered in China in the face of stiff competition from market-leader Samsung Electronics Co Ltd and up-and-coming local rival Xiaomi Tech.

Samsung had a 21 percent share of China's smartphone market in the third quarter of 2013, with Apple trailing in fifth place with just 6 percent, according to research firm Canalys.

But the arrival of the iPhone could be a double-edged sword for China Mobile, with some analysts predicting a costly subsidy war as rival carriers compete to lure customers.

"I don't see a price war coming where Apple is engaged in the war, but I do think you're going to see a subsidy war coming," said Michael Clendenin, managing director of Shanghai-based RedTech Advisors.

"China Mobile, if they're not making their targets on sales for these phones, they're going to increase the subsidies... It's like airlines: the other guys will fall like dominoes, so China Unicom will do it and China Telecom will do it."

China Mobile's iPhone sales are expected to reach 12 million in its 2014 fiscal year, but its subsidies will leap 57 percent to 42.4 billion yuan ($7 billion), up from 27 billion yuan in its fiscal year 2013, wrote Cynthia Meng, a Jefferies analyst, in a December note.   Continued...

 
Apple Inc. CEO Tim Cook (R) and China Mobile's Chairman Xi Guohua (L) with iPhones pose with a customer at an event celebrating the launch of Apple's iPhone on China Mobile's network at a China Mobile shop in Beijing January 17, 2014. REUTERS/Kim Kyung-Hoon