China Mobile and Apple 'tie the knot'

Apple Inc CEO Tim Cook (left) and Xi Guohua, China Mobile Ltd chairman, meet reporters in Beijing on Wednesday.

'Happy marriage' will help US electronics company sell more products in China, and two companies may join hands in iPad sector, Shen Jingting reports

Apple Inc's recent agreement with China Mobile Ltd, the world's biggest telecom carrier with a user base of 760 million, is a significant start for the two companies' cooperation, according to two of their top executives.

Xi Guohua, chairman of China Mobile, compared the company's six-year continuous negotiations with Apple with a long "courtship". After the two companies finally reached a deal on Dec 23, 2013, Xi joked that China Mobile and Apple had entered into a happy marriage.

Xi made the remarks at a small news briefing with Tim Cook, Apple's chief executive officer, at China Mobile's Beijing headquarters on Wednesday.

According to the December agreement, China Mobile is going to sell the iPhone 5S and iPhone 5C handsets on its fourth generation (4G) network on the Chinese mainland from Jan 17. The contract fee is fixed at 5,488 yuan ($907) for a 16-gigabyte iPhone 5S handset and shoppers can select a monthly payment varying from 138 yuan to 588 yuan.

The number of pre-orders for China Mobile's iPhone devices in a 20-day period starting Dec 25, exceeded 1 million, according to the company.

Xi said he was confident sales of the China Mobile version of the iPhones would far exceed the expectations of others.

"It's just the start of our cooperation," Cook said. It has been the third time he has paid a visit to China Mobile Beijing's office since 2013.

"Apple and China Mobile can do a lot more things together," Cook pointed out.

Xi added that instead of restricting them to the handset business, the two companies can look into opportunities presented by the burgeoning mobile Internet industry, which is giving birth to rapid-developing technologies and various new business fields.

However, they did not disclose further details.

Bryan Wang, principal analyst with Forrester Market Advisory (Beijing) Co Ltd, said the most likely target for Apple and China Mobile's further cooperation falls on tablet computers.

"China Mobile has about 65,000 points of sale across China, which will act as a great platform for Apple selling iPad products," Wang said.

In addition, wearable devices, such as the rumored iWatch developed by Apple, will help China Mobile extend customer relationships beyond one device. Wang said diverse Apple hardware could assist China Mobile to lift customer "stickiness" by offering multiple mobile touch points.

Apple was the fifth-largest smartphone vendor in the Chinese market in the third quarter of 2013, with a market share of 5.8 percent, according to a report from International Data Corp (IDC).

Its share followed South Korean company Samsung Electronics Co Ltd (19.3 percent). Lenovo Group Co Ltd (11.8 percent). Yulong Telecommunication Ltd (maker of Coolpad) (11.7 percent) and Huawei Technologies Co Ltd (8.6 percent) during the same period.

On Wednesday's meeting, Cook also said Apple will reach more customers in third- and fourth-tier cities in China.

"China Mobile already has a presence in many cities that Apple does not have. So yes, Apple will go into more and more cities, and China Mobile's distribution network will be an enormous asset to us," Cook said.

James Yan, a senior analyst with IDC China, said Apple faces an increasingly saturated market in big Chinese cities such as Beijing and Shanghai, where Apple enthusiasts and many high-end users have already purchased iPhone devices.

"That people in smaller cities demonstrate a purchasing capability sometimes astonishes vendors. Because Apple enjoys fame nationwide, the company will benefit from expanding its channels," Yan added.

Apple sold about 23 million iPhone devices in 2013, according to IDC.

Cook revealed that the company sold a record high number of iPhone handsets in China (including Hong Kong, Macao and Taiwan) in the first fiscal quarter of 2014 ending in December.

Analysts expect Apple's alliance with China Mobile to increase iPhone shipments by 12 million to 17 million this year.

However, Apple still has several challenges.

"Price is unfortunately still a major barrier, which will exclude the majority of China Mobile's subscribers," said Wang Jingwen, a telecom analyst with research firm Canalys.

According to Apple's China website, the unsubsidized retail price of a 16-gigabyte iPhone 5S is 5,288 yuan, while an iPhone 5C with the same storage capacity costs 4,488 yuan.

Despite being assembled in China, those prices are some of the highest around the world and exceed the average monthly salary in China.

Cook defended Apple's pricing strategy by saying that the company wants to provide customers with .the best products and best user experiences.

"Apple will not sell the most, but will create the best products," he said.

Since China Mobile's 4G network offers superb speed, iPhone devices running on this network will definitely create an exceptional user experience, he added.