Did China just open the door for Apple's iPhone?
There were plenty of losers Monday in the wake of the People's Republic of China's sweeping overhaul of its telecommunications industry.
China Mobile lost more than $25 billion in market value after the government announced over the weekend that it was merging two smaller competitors in an effort to weaken the giant carrier's hold on the country's cell phone business — prompting Goldman Sachs to issue a rare "sell" rating on China Mobile's (CHL) shares.
Markets sank across the Pacific Rim on the news. Hong Kong's Hang Seng fell 2.4%. The Shanghai Composite Index dropped 3.1%. Japan's Nikkei slumped 2.3% to its lowest level in a month
But there may be several winners: including Steve Jobs' Apple.
Since last fall, Jobs has been trying — without success — to negotiate an iPhone deal with China Mobile. The country's 583 million subscribers represent the biggest prize on the planet for cell phone makers — the last missing piece in Jobs' plan to blanket the earth with iPhones — and China Mobile controls two thirds of them.
But since the companies last talked, two things have changed. In its recent flurry of deals with other foreign carriers, Apple seems to have backed away from its insistence on hefty revenue-sharing formulas in exchange for exclusivity — the sticking point in its early negotiations with China Mobile.
And now China Mobile's hand has been weakened by its own government.
A Chinese statement issued Monday said that the mergers would set in motion the awarding of licenses for 3G service that supports wireless video, Web surfing and other services, according to an AP report.
That report added that the restructuring would create opportunities for foreign equipment vendors such as Ericsson (ERIC), Alcatel-Lucent (ALU), Nokia (NOK) and Siemens (SI).
We're adding Apple (AAPL) to that list.
Please be advised that unless Apple starts making multiple versions of the iPhone, they need to pair up with carriers who use GSM/GPRS technology and its 3G versions. There's much indication that China's government will NOT be awarding 3G licenses along this particular technological path to CHL — CHL will probably be using the homegrown Chinese standard known as TD-SCDMA. This leaves WCDMA and 1xEV-DO to others.
China Mobile backed away from any kind of deal with Apple out of protest: protest over the knowledge that the iPhone was in fact stolen by Steve Jobs with the help of his friend Larry Ellison in 2003 from Chinese-American MIT engineer Irving Tsai, who reportedly showed the designs to them. Tsai's US #7,016,084 patent is in fact being infringed by Apple's iPhone and iPod Touch. American lawyer and blogger Stephen M. Nipper reported on some of the issues impacted by Tsai's work, including the invalidity of the landmark Eolas '906 patent. Steve Jobs hired Tsai's lawyers: Weil Gotshal & Manges, as a bribe, and built his flagship Manhattan store in the plaza of their law offices. China Mobile is keeenly aware of the racially motivated bias against minority crime victims in the US, particularly when the perpetrator of the crime is an "American hero" like Steve Jobs. This is compounded when the perpetrator is in a financial position to "buy" the help of those he needs. Mr Jobs may have succeeded in extorting exorbitant royalties from European, Australian, Canadian, and other mobile carriers with his stolen iphone, but that is for regulators and law enforcement in those nations to investigate. Things are not as they appear, or as powerful men like Steve Jobs would manipulate things to appear. But what has happened is racketeering, securities fraud, and business fraud on a massive scale and on a global stage, and it is only a matter of time before it all unravels for Steve Jobs. There are obviously multiple other players vying for the same market space, afterall.
The deal is not going to be with China Mobile Limited (CHL), that deal is off !!
Telefonica from Spain just bought a couple of days ago, an additional 2.2% in China Netcom increasing their share to 10%.
Here is the link
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=adLBebpQvKcA
Telefonica is not only the choice of Apple for Spain, but they are also the largest mobile network in Latin America: Mexico, Brazil, Argentina, Venezuela, Chile,….
Apple only has one choice in Latin America and Spain, and they are already in negotiations with TELEFONICA, and in order to keep things simple that is where they will finally end up in China.
China Netcom deal will be announced in two weeks, and then Spain, and then the rest of Latin America, all this within 6 months.
I am not saying that the deal with China Netcom is the best for Apple, since China Mobile is 4 times larger than China Netcom.
But since China Mobile is playing hard to get, Telefonica jumped in and now is offering a different deal: China, Spain, and Latin America.
"China has made the 2008 Beijing Summer Olympic Games a deadline for launch of their new 3G network."
Chinese Govt sells Vodafone a additional 20% stake in China Mobile to create better sygergy with the Vodafone Platforms on offer in other countries.
@Dan Butterfield
Great, links. I came to the same conclusion when news came out on Friday. I tried to write something about it but stopped when realized that I do not have enough knowledge about that market space. Thanks for great info and education.
The China telecom industry restructuring process has been in planning for about 3 years and quietly underway for the last six months. Apple has been very closely following all of this + 3G (TD-SCDMA) "issues" in China. This explains why Apple did not make haste and rush to Beijing to conclude an ‘immediate’ deal. 3G licenses in China are a few months away and the 800 pound gorilla, China Mobile, now as more reasons to be flexible. More here >
http://idannyb.wordpress.com/2008/05/26/china-telecom-restructuring-and-iphone-in-china/
and here >
http://idannyb.wordpress.com/2008/02/01/rumor-china’s-td-scdma-3g-may-not-be-long-for-this-world/
ex ped: Thanks for the links. Very helpful.
I believe the "sticking point" in the negotiations was China mobile wanting to share revenue of songs etc. purchased through their network.
Good job connecting the dots! Using the iPhone to gain a competitive edge over a competing wireless provider is good business. The Chinese government stimulating competition in the Chinese wireless market is good news for many. iPhone in China (officially!) by the Olympics!!
According to China Tech News, Apple (AAPL) has chosen Beijing’s Sanlitun area to open a 3,000 square meter store. And knowing Apple, there will undoubtedly be heavy use of Apple and iPhone imagery during broadcasts of olympic events.
http://www.zachbass.com