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Cook, not Nixon, goes to China to strike deal

Gregg Keizer | Jan. 11, 2013
Apple CEO Tim Cook met today with Xi Guohua, head of China Mobile, the world's largest wireless carrier, triggering speculation that the two firms will strike a deal this year.

Apple CEO Tim Cook met today with Xi Guohua, head of China Mobile, the world's largest wireless carrier, triggering speculation that the two firms will strike a deal this year.

"We believe media reports of Tim's Cook meeting this week with the Chairman of China Mobile supports our contention that the two companies are in deep discussions, with our expectation of a deal in 2013," said Brian White of Topeka Capital Markets, in an email.

China Mobile had 707 million wireless subscribers in November 2012, the last month for which data is available, and a 3G subscriber base of 82 million. While both its competitors, China Unicom and China Telecom, currently sell the iPhone 5, China Mobile does not.

Although China Mobile today said only that the two executives talked about "matters of cooperation" in their meeting, the discussions hint that negotiations are nearing their final stage.

"Our most recent meeting [with China Mobile] sounded similar (i.e., frustrated, questioning the economics) to our meeting with China Telecom months before they signed an agreement with Apple," said White.

Talk of an impending China Mobile-Apple deal isn't new, as the companies have held talks since 2007, the year the first-generation iPhone launched, China Mobile's CEO Li Yue said last month.

White characterized the late 2012 discussions as "deep and heated."

China Mobile has explained its lack of the iPhone by citing both technological and business barriers. The carrier uses a proprietary 3G technology called TD-SCDMA, which the iPhone 5 can support. China Mobile also relies on a homegrown brand of 4G, dubbed TD-LTE, that it's been running through trials and plans to deploy in a limited number of cities in the second half of 2013.

Analysts in Asia have said that the iPhone 5 won't work on China Mobile's TD-LTE network, meaning that Apple would have to redesign the smartphone to tap that market.

Money is also an issue.

"The biggest sticking point in the past between China Mobile and Apple has been the big 'tax' that Apple has on their stuff," said Jack Gold, principal analyst at J. Gold Associates, in an interview Thursday. "But [China Mobile] has not been willing to pay that in past, so negotiations are ongoing."

By "tax," Gold was referring to Apple's high prices. In many markets, those are hidden by carrier subsidies, which reduce the out-of-pocket price by locking in customers to long-term contracts. In China, however, most mobile customers purchase phones without a contract. Chinese consumers, for example, pay the equivalent of $850 for a 16GB iPhone 5 sans a contract; U.S. buyers pay just $199 when they sign a two-year agreement with a carrier.

 

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