3G FEVER: The iPhone will either help or hinder China Unicom's hopes of competing for 3G business (HU MING)
Apple Inc.'s iPhone handset hit store shelves in China on October 30, as the Beijing-headquartered China Unicom Ltd., one of the country's big three wireless operators, officially launched the 3G device on China's mainland. The release is expected to bring a long-anticipated boon for China Unicom and its customers, said Chang Xiaobing, the company's board chairman.
After merging with China Netcom via a share swap earlier this year, China Unicom received 3G licensing based on Wideband Code Division Multiple Access (WCDMA) technology, the prevailing 3G standard in Europe. Currently listed in Hong Kong, New York City and Shanghai, the company had registered total assets of 526.67 billion yuan ($77 billion) by the end of 2008. With more than 463,000 employees, China Unicom has a number of branches scattered across the country as well as an established global presence.
But in the rush toward 3G business, China Unicom seems to be lagging in terms of market penetration and network development. China Mobile, the world's largest telecom carrier by market value, has been leading the race with the homegrown TD-SCDAMA standard followed by the CDMA2000 network of China Telecom. The mature WCDMA network of China Unicom is widely used around the world, but in China efforts are needed for the technology to gain a solid footing.
China Unicom was not Apple's first choice of a carrier to release the iPhone in China. After several rounds of talks with China Mobile failed due to divergent views on the profit-sharing scheme, the U.S. electronics titan finally switched to China Unicom.
A boost to confidence
While it may be too soon to tell if the iPhone will allow China Unicom to carve out a bigger piece of the 3G pie in China, the release of the Apple super phone comes as nothing but good news for the telecommunications giant.
The trendy multimedia handset is quick with data retrieval over China Unicom's network and, aside from its primary function as a cell phone, also has GPS satellite-positioning, music and video player capabilities and Web browsing options.
Meanwhile, China has become one of the fastest growing mobile phone markets in the world with deep potential for further growth. Young Chinese consumers, in particular, have great enthusiasm for the most iconic smart phone released to date. Data from the international consulting firm Gartner showed that Chinese consumers change mobile phones every 2.17 years, compared with the world average of 2.5 years, setting the stage for the iPhone to become a market success in China.
The outlook has been promising, as China Unicom recently announced that online reservations for the iPhone reached 10,000 units during the eight-day National Day holiday this year.
Since all iPhone buyers become 3G subscribers, the WCDMA network is expected to see a substantial improvement in market penetration. Improved sales will help put a floor under the corporate performance of China Unicom that has been suffering from intensified competition.
Industrial restructuring earlier this year allowed China Telecom to plug into the wireless market. In addition, all three mobile operators have been spending substantially on 3G network construction and marketing, explaining the slow growth China Unicom experienced in its rate of new subscribers earlier this year.
"The introduction of the iPhone handset is not only a benefit for numerous consumers, but also a boost to our confidence in tapping the 3G market," said Chang in a statement.
Nevertheless, analysts believe the iPhone may not necessarily be a panacea for China Unicom, given its high price that threatens to depress demands.
The iPhone is sold at 4,999 yuan ($731.4) per set. Another option allows customers to buy a two-year contract for a service package, priced at 586 yuan ($85.7) per month, and receive an 8GB iPhone for free. But before enjoying the 3G service, customers have to pay 5,999 yuan ($877.7) as a down payment.
Either way the price puts the iPhone out of the budgets of most mainland consumers. Chen Yunhong, a senior analyst with the Beijing-based Sinolink Securities Co. Ltd., told Beijing Review that China Unicom aims to polish the appeal of its service packages, but the high price may douse buying interest.
In addition, according to the profit-sharing scheme, China Unicom will not enjoy substantial benefits until iPhone sales reach more than 100,000 sets, a target that will not be easy to reach.
Huang Chuizhi, a researcher with the Guangzhou-based Selection Marketing Research Co. Ltd., said in a recent report that the iPhone could add luster to the 3G business of China Unicom but would definitely not bring about a substantial turnaround in subscribers. China Unicom's present subscriber base is barely one third that of China Mobile, leaving it with considerable ground to gain on its telecom rival.
A variety of handsets available for the WCDMA network already exist to compete against the iPhone, added Huang.
Chen Haofei, a telecom analyst with the China International Capital Corp. Ltd., said the biggest obstacle to iPhone's success in China is the stringent prepayment requirement that will scare many potential buyers away. If not properly addressed, this would cause the versatility of Apple's smart phone to sour, added Chen.
Already, expectations are proliferating that China Unicom may lower the price of the iPhone to obtain larger market shares. But analysts believe more efforts are still needed to develop 3G networks, since none of the three major telecom operators has built up a country-wide 3G network, and lowered the tariffs for the multiple services that stand much higher than those of 2G networks, they said.