Talks for Offering iPhone in China Stall

China Mobile president Wang Jianzhou revealed several weeks ago that the company was negotiating with Apple for the iPhone, but Wang signaled he wasn't particularly interested in sharing subscriber revenues. Apparently that was the message Wang delivered to Jobs this week, as a Chinese newspaper reported that the talks had stalled.

Is Apple's strategy of exclusive carrier deals for the iPhone unraveling? Events in China and Germany this week suggest that CEO Steve Jobs might have to rethink the strategy, at least in parts of the world.

A Chinese newspaper reported Thursday that talks between Apple and China Mobile, China's largest wireless carrier, have stalled over the issue of revenue-sharing. And in France and Germany, laws prevent the kind of monopolistic deal Apple has carved out with AT&T in the U.S. Apple and the carriers have responded by selling unlocked iPhones for roughly three times the cost of locked phones.

On Tuesday, virtual mobile operator Debitel, which resells minutes it buys from Apple partner T-Mobile, said it would refund the difference between a locked and unlocked German iPhone.

Cracking China

"China is an important market for cell phones and overall has to be figured into Apple's worldwide strategy for the iPhone," Tim Bajarin, principal analyst for Creative Strategies, said in an e-mail. "But it is a difficult market to penetrate and Apple would need China Mobile if they want to gain any serious traction in this emerging market."

China Mobile president Wang Jianzhou revealed several weeks ago that the company was negotiating with Apple for the iPhone. But Wang signaled he wasn't particularly interested in sharing subscriber revenues. "We still think we can maintain the operator-centric model because we have the customers," Wang said at an Asian wireless conference.

Apparently that was the message Wang delivered to Jobs this week, as a Chinese newspaper reported that the talks had stalled, although China Mobile denied the reports. Apple is reportedly planning on selling the iPhone directly through Apple stores while it works on other carrier deals.

"It will probably take serious compromises on the part of Apple and China Mobile or even a second-tier vendor if a deal is to be done to make it possible to have legitimate Apple iPhones offered in China," Bajarin said. "But Apple can't ignore China if it wants to be a global smartphone leader.

Revenue-Sharing Bonanza

Jobs will be loath to leave all the subscriber revenue in Chinese hands as such a deal would weaken Apple's positions with carriers in other countries. Analysts estimate that revenue-sharing from the AT&T deal has put a lot of dollars in Apple's bank account -- more than enough to make up for the cost of fighting back hackers determined to unlock the iPhone for use with other carriers.

Piper Jaffray analyst Gene Munster has estimated that AT&T pays between $6.50 and $18 per subscriber per month to Apple. He estimated the number will settle at $9 per subscription by the end of 2009. Those numbers come out to a whopping $4 billion a year to Apple, Munster estimated.

And that's not factoring in revenue-sharing deals from Europe. Apple launched the iPhone in France Wednesday at a celebration at the Apple Store in Paris that featured a line hundreds of feet long and a VIP section. Orange, Apple's exclusive carrier in France, expects to sell up to 500,000 iPhones in 2008, president Didier Lombard said. An unlocked French iPhone will sell for 649 euros.

A Choice in Germany

Orange confirmed that there is a revenue-sharing deal with Apple but didn't comment on rumors that Apple's cut is as high as 25 percent. "Apple could one day extend distribution to other players. But in that case we have guarantees that they will be sold with Orange contracts," Orange France director Louis-Pierre Wenes told Le Figaro.

A German court recently ordered Apple and its chosen carrier, T-Mobile, to offer an unlocked version of the phone; they complied by pricing it at 999 euros.

On Tuesday, Debitel, a mobile airtime reseller, said it would refund the 600 euro difference between a locked and unlocked phone. "We are happy to offer iPhone buyers the freedom of choice that customers are entitled to expect from a service provider," said Oliver Steil, Debitel's marketing chief.