Monday, February 18, 2008

China Mobile has negotiation edge with its 400,000 iPhones

When China Mobile ended iPhone talks with Apple in January, the company cited the infamous revenue sharing component of the deal as the main cause for dispute. As it turns out, the iPhone gray market may have provided China Mobie with a very good reason to drive a hard bargain: a whole lot of unlocked iPhones on its network. According to a report by communications research company In-Stat, China Mobile reported that it had 400,000 iPhones on its network at the end of 2007, despite the fact that the device isn't for sale in China.

That number represents more iPhones than are in use in Europe, and roughly 10 percent of all iPhones sold thus far. The devices are imported by a variety of companies and unlocked using hardware methods, allowing them to run on any GSM network. China Mobile doesn't have the only GSM network in China, so it's possible that even more devices could be active with other carriers, including China Mobile competitor China Unicom.

It's possible that China Mobile is exaggerating in an attempt to gain a stronger negotiating position with Apple, but assuming the statistic is true, it has a number of implications. It means that there's a demonstrated market for the iPhone in China, which is always good to see when you're entering a new country. Unfortunately for Apple, this news puts the company in a much worse position to negotiate in China (particularly with China Mobile). The carrier is already getting revenue from iPhones with being Apple's partner, so it's not going to want to share much (or any) of its earnings with Apple.

In general, the initial device numbers give both sides ammunition for the contract negotiation process. We'll just have to wait and see whether Apple cares enough to do something about it.