Apple's Key to China
Oct 25th 2011 11:06PM
Updated Oct 25th 2011 11:08PM
Reuters reports that China Mobile (NYS: CHL) now has 10 million iPhone users on its network, despite the lack of an official agreement with Cupertino. So far, China Unicom (NYS: CHU) is the only officially sanctioned iPhone carrier in the country, but that hasn't stopped adventurous users from unlocking the phone to use on China Mobile's network, similar to how stateside counterparts get the device running on T-Mobile's network, even while it was exclusive to AT&T (NYS: T) .
Also like T-Mobile, current iterations of the iPhone aren't compatible with China Mobile's 3G network due to different frequencies, so unlocked iPhone users currently on those respective networks are relegated to slower 2G data speeds. This makes the 10 million figure so much more potent, since it signals that users value the device itself so much that they're willing to sacrifice data speeds just to have it. Apple has a lot more incentive to build a compatible device for China Mobile than T-Mobile, especially after adding Verizon (NYS: VZ) and Sprint Nextel (NYS: S) to its domestic carrier lineup.
At the end of September, China Mobile was up to 630 million subscribers, and although a large portion of those users refrain from paying expensive data fees and stick with voice calling and texting, the country has been aggressively building out its 3G network infrastructure and 3G penetration sits at a minuscule 4% even after 3G subscribers grew 172% year-over-year last quarter.
Any way you slice it, China Mobile represents Apple's key to deeper penetration in the country's growing smartphone market, as the carrier has more than three times as many mobile subscribers than China Unicom's 189 million.
Rumors have swirled for ages and included discussions with the late Steve Jobs, and Apple CEO Tim Cook has also previously been reportedly spotted at China Mobile headquarters. China Mobile Chairman Wang Jianzhou has previously said his company has received a "positive answer from Apple" regarding a 4G TD-LTE capable iPhone.
The inevitable deal with China Mobile is going to be huge once it's inked. With a high-end mobile market in China of between 100 million and 125 million subscribers and counting, the potential revenue opportunity would be in the neighborhood of $70 billion by some sources estimates.
With the opportunity that China Mobile represents and the fact that Apple has a mere six retail stores in China, Apple really is the best way to invest in Chinese growth.
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At the time this article was published Fool contributor Evan Niu owns shares of AT&T and Apple, but he holds no other position in any company mentioned. Check out his holdings and a short bio. The Motley Fool owns shares of Apple and China Mobile. Motley Fool newsletter services have recommended buying shares of Apple, China Mobile, and AT&T and creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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