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In China, Apple spies 763 million potential iPhone customers

Apple iPhone users on the world's largest cell network will get full functionality and 4G capacity, but the luxury handset will remain out of reach for many Chinese.

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A man uses his Apple iPhone on a street in Beijing Monday, Dec. 23, 2013. Apple and China Mobile announced a long-anticipated agreement Monday to bring the iPhone to the world's biggest phone company.

Ng Han Guan/AP

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Chinese iPhone fans were not exactly dancing in the streets here Monday. But they were quick to welcome Apple’s long-awaited deal with the world’s largest mobile phone network, China Mobile.

The agreement means that China Mobile subscribers who already use iPhones (about 45 million, including this correspondent) will, at last, be able to get full functionality out of their handsets without having to switch carriers and change phone numbers. 

“Happiness always comes late,” wrote one blogger on Sina weibo, China’s Twitter-like social media platform.

In New York, shares in Apple rose 3.3 percent to $567.13 in early trading as investors seized on the news that America’s largest smartphone manufacturer finally had full access to China Mobile's 763 million subscribers, starting next month. 

It has been six years since Apple first started negotiating with China Mobile. All this time, we China Mobile subscribers who could not resist an iPhone had to put up with slow speeds, and do without some features. 

Why? Because our iPhones did not support China Mobile’s home-grown 3G standard.

Now, China Mobile is rolling out a 4G cell network that a standard Apple product will support. “The standard is not a problem anymore,” says Wang Wujun, a mobile phone analyst with the CCID consultancy in Beijing.

But if the deal has finally been sealed, it has to do with more than just technical issues, says Mark Natkin, head of Marbridge Consulting, a research firm.

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Six years ago, Mr. Natkin points out, Apple and state-controlled China Mobile were both kings of their particular hills and “very accustomed to dictating the terms of any cooperation.” Neither showed the flexibility that an agreement would have required.

When it launched, Apple’s iPhone was unique – far ahead of the competition – and 74 percent of China’s mobile phone users were China Mobile subscribers.

By the end of 2008, China Mobile was swallowing 92 percent of all new subscriptions every month. But that was then.

In the last year or so “both companies have been humbled,” Mr. Natkin points out. Apple’s smartphone sales in China have stagnated: the company ranks only fifth in handset sales, behind South Korea's Samsung and Chinese mass-market manufacturers such as Huawei and Lenovo.

Luxury item in China

At the same time, China Mobile is expected to post its first annual profit decline in 14 years due to declining market share.

The new deal, announced Sunday, offers both companies a way to rebound in China, which has a staggering 1.2 billion wireless subscribers. But it is not necessarily going to be a panacea for Apple, analysts here caution.

For a start, though the company has not said how much it will charge for phones sold via China Mobile, there are no signs that it will abandon the luxury end of the cellphone market. An unlocked iPhone 5S currently sells in China for $870, about the same as it costs in America.

That is bound to limit sales. It is not as if all 763 million of China Mobile’s subscribers – or even the 300 million of them using 3G services – are suddenly going to go out and buy an iPhone.

And Apple is also suffering from the growing popularity in China of big-screen mobile handsets that resemble mini-tablets. The touchscreen on Huawei’s new model, which is selling briskly, is half as big again as an iPhone.

“If Apple does not increase its screen size,” warns Dr. Wang, “it is going to see its market share in China continue to shrink.”

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