The C was supposed to appeal to all those people around the world who yearn for the cache of owning an Apple product but suffer from the unfortunate inability to pay for one.
The next big announcement came when Apple and China Mobile announced that agreement had - finally - been reached on having the mobile provider to the world's biggest population start to offer Apple products.
The common expectation has been that Apple will very soon have to look to other galaxies and life forms for market share expansion opportunities as it will now own all of this planet's human-based smartphone capacity. As the following article explains, however, such euphoria is probably premature. By a lot.
Some of the issues are technical, such as the fact that only a relatively small percentage of China Mobile subscribers have access to 3G capabilities, let alone 4. Some issues are market demographics-oriented: China Mobile tends to skew heavily towards the country's rural population which, though significant, trails its urban relatives in terms of income, sophistication, ability to get a signal, etc. And, finally, some of the issues are financial, this one being that the market has already priced in the potential benefits.
All of which is not to say this is not a great development for Apple, but that conquering new territories in the global economy is not quite the assurance of easy wealth that it was several hundred years ago - and that many credulous investors would still like to believe. JL
Nigam Arora reports in Forbes:
There are many reasons to own Apple going into 2014, but China Mobile is not one of the main reasons.
China Mobile has scheduled an event on December 18 and the speculation has been that China Mobile will introduce Apple's AAPL +1.18%iPhone. The Wall Street Journal reported that China Mobile will take pre-orders for iPhones.
One of the big reasons for the popularity of Apple in China is that young people in the cities consider an iPhone a status symbol. The rural population lives hand to mouth. China Mobile’s subscriber base skews towards the rural population, not helpful for iPhone sales.It is easy to see how a superficial analysis can lead one to conclude that it is a big deal. After all, China Mobile has over 700 million customers and is the last major telecommunications carrier that has held out in not carrying the iPhone. Take a look at the following and make a judgment for yourself.
Average revenue per user per month or ARPU as it is commonly known in the industry was only 71 RMB/per user per month in 2011 and declined to 68 RMB/ per user per month is 2012. For 2013, only an interim report is available; it appears that ARPU was 66 RMB per month, or about $4.00 per month.
As a reference consider that in the U. S., Verizon reported postpaid ARPA (average revenue per account) of $150.27 per month. Verizon has been reporting ARPA instead of ARPU because customers can share data.
With about $4.00 per month average revenue per subscriber per month, how many of these subscribers can afford a $700 iPhone?
Only 176 Million 3G Customers
As of October 31, 2013, China Mobile reported 759.274 million customers. However, only 176.019 million customers were 3G customers. The point is that any analysis should take into account only 176 million customers and not 760 million customers. The reason is that customers who have not switched to 3G are not likely to be buying an iPhone.
3G Growth Is Slowing
The momentum of 3G growth is slowing. As of January 31, 2013, there were 94.979 million 3G customers. On August 31, 2013, 3G customers rose to 158.687 million, on September 30, 2013 3G customers rose to 169.502 million, and on October 31, 2013, 3G customers rose to 176.019 million.
Ultimately all of the customers will be 3G customers. However, it will take a long time and contribution to Apple earnings in the near future has to be based on the number of 3G customers.
4G Transition
China Mobile is just beginning the transition to 4G. Many of iPhone’s features do not work well without 4G.
Rural Skew
China Mobile has had a larger share of the rural market as compared to its competitors. Part of the reason is that China Mobile has been providing agricultural information services.
Gray Market
Even though China Mobile has not officially offered iPhones, there has been a gray market in unlocked iPhones. Estimates of iPhones running on China Mobile network in this gray area have ranged from 20 to 40 million iPhones. The point is that a large number of China Mobile subscribers already own an iPhone and may not buy new iPhones as a result of the Apple deal with China Mobile.
Taking into account Apple’s market share in China, strong competitors, low disposable incomes, lower gross margins from China Mobile, and the profile of China Mobile customers, after the initial surge, Apple may be selling only 5 to 10 million new iPhones on a steady basis. Further, the iPhone sales will be skewed to lower priced models. Taking into account the foregoing, China Mobile may account for only $1 to $2 incremental earnings for Apple after the initial surge. As a reference, the high estimate of Apple earnings for year ending September 2015 is $56.20.
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