No iPhone in China: Who is to Congratulate and Who is to Blame?

I try to read as many other blogs as my time allows and there are many times I will have some kind of response to what someone else posted, but its rare that they will drive me to post. Well, here goes. As someone who paid close attention to the China Mobile-Apple negotiations and was really hoping to get my hands on a licensed iPhone (as on my last trip to the US I discovered I was too late to get one that could be easily unlocked), the breaking off of negotiations between those two parties left me somewhat sad.

In reality, it didn't stop iPhones from entering the China market through the backdoor, as the New York Times has explained. Is Steve Jobs being too greedy or did China Mobile have too much confidence in its hand? The reality is somewhere in between, but if anything, its probably easier to blame Jobs.

Therefore, I was a bit surprised to see The China Game, a recent blog that is a pretty good read, take the side of Jobs, even stating:

While everyone was slamming poor old Steve, I wished to congratulate him at
least for holding his ground. So many have gone to China and given away the
store, and here you had a guy who knew where he stood, someone unfazed by all of
the China hype. Bravo

Okay, the "China hype"? "Given away the store"? This language seems to be going back to the wild, wild west days when JVs were the name of the game.

China Game wrongly states that Chinese consumers who got an iPhone through the backdoor don't have to use China Mobile. While it is true that a user could probably go with China Unicom, despite its horrible GSM services, its highly unlikely. China Unicom's focus is on CDMA and therefore any iPhone purchaser is probably choosing China Mobile and its also highly unlikely that Apple will do a deal with Unicom.

Consumers are paying a premium for the iPhone here, but none of that money is going back to Apple, because the phones are usually purchased in the US or Europe. Just think, they could offer the iPhone in China for a price of up to US$100 more than it sells in the US and still have no problem garnering major interest. A licensed iPhone through a Chinese carrier offered at the same price as it is in the US would almost immediately make it the top selling phone in China, especially if you look at what is currently available in the RMB2500-3000 price range.

Also, while China Game sees Apple as creating "customers" in China, the reality is that they are only creating "window shoppers." The current price of the iPhone, hiked up by greedy importers, is making it a tough sell. I've yet to see an iPhone used by someone in China who isn't an expat or an overseas Chinese. The idea that the iPhone is a "hit" in China is insane, sure, as the NYT says "thousands" have been smuggled back into China, but 1. they aren't selling like hotcakes, and 2. "thousands" is a miniscule number in the Chinese mobile phone market. The price issue matches much of the talk you hear from Chinese about Apple products. While many love the design and are highly interested in Apple's other products, price and concerns about software often keep them away from purchasing computers, legit iPhones could have been the first step in really creating "customers."

Granted, China Mobile lost out on getting a cut of sales from the iPhone (at least for now), but as for services, most people are still choosing to go with China Mobile. Equally, the corresponding cut Apple would have gotten from China Mobile on iPhone service usage would have been much greater to what China Mobile would get from sales. If a customer uses an iPhone or not, there are still a lot of premium services that China Mobile offers and that bring in a lot of money. Unlike in the US and Europe, its unlikely a Chinese version of iTunes would be released (and even if it did, there's no way Chinese would pay for music online), so the one new area of revenue that China Mobile would have seen (other than sales of handsets) was a moot point.

Neither of these companies are hurting, but the iPhone was Apple's chance to enter China in a big way and it fell through. If anyone comes crawling back to the table, its going to be Jobs.