China Unicom, one of China's big three telecoms carriers, has started negotiations with Apple Inc. over the launch of iPhone in China, China Business News reported Wednesday.

"Yes, we are in talks with Apple Inc.," a manager told the newspaper.

However, whether China Unicom will be able to start selling iPhone on May 17, the day it opens its new WCDMA network, remains to be seen.

China Unicom's negotiation team with Apple is headed by the company's board chairman Chang Xiaobing, the newspaper said.

If China Unicom pulls off the iPhone deal, it will be a huge boost for the company's WCDMA business. But the question is; what is Unicom's bottom line in the negotiations? What concessions is it prepared to make on Apple's demand for revenue sharing in the voice business?

China Unicom's spokesman refused to comment the issue and said that "the company has not authorized us to provide any explanation to the media".

China Unicom's ambition

"China Unicom has held several rounds of negotiations with Apple Inc.," said a well-informed source within the company, "but there are still many obstacles ahead."

According to the source, China Unicom started talks with Apple as early as last October. However, the two parties couldn't reach an agreement due to policy restrictions and business model differences.

For example, the iPhone features an integrated Wi-Fi function, which, according to regulations of the Ministry of Industry and Information Technology, is not allowed on cell phones. So the iPhone can only enter the Chinese market if Apple agrees to remove the Wi-Fi function or the Chinese government lifts its regulations.

The two parties also disagree on the pre-installed software on the iPhone, such as iTunes Apple Stores, YouTube and so on. China Unicom wants Apple to include applications that Chinese users are more familiar with, but Apple is reluctant to do so.

The fact that China Unicom will be the only WCDMA service provider in China gives the company more competitiveness in the bid to introduce iPhone to China, an employee with China Unicom told the newspaper.

Current iPhone users are at the high-end of the cell phone market, precisely the consumer group targeted by China Unicom. China Unicom would clearly benefit if it can manage to lure customers from China Mobile with the iPhone.

But Apple's request for revenue sharing in the voice business remains a major stumbling block, said Wang Yuquan, president of Frost & Sullivan (China). Given that China Unicom is far less profitable than China Mobile and is facing huge pressure achieving its growth target, Apple's revenue sharing request looks set to compound the company's difficulties.

"More importantly, it's impossible for China Unicom to calculate exactly how many new high-end users the iPhone will bring," said Wang Yuquan, adding that if iPhone users turn out to be mainly China Unicom's existing customers, the company will lose out by giving a share of its revenue to Apple.

(China.org.cn February 11, 2009)