Apple’s deal with China Mobile hints at big things to come
HOST INTRO: In terms of the world’s largest companies, nobody can really touch Apple. Its deal with China’s largest mobile network buoyed investor sentiment. Poppie Mphuthing finds out if the tech giant’s big entry into China, the world’s second largest market, will boost the company’s bottom line and ensure its future growth.
Apple’s deal with China Mobile could put the iPhone into as many as 750 million new subscribers. During Apple’s January Quarterly earnings CEO Tim Cook said the company is poised to dominate.
COOK: “It’s been an incredible start, at this moment we’re selling in just 16 cities with China mobile… and this number is expected to be over 300 cities by the end of the year.”
However initial sales disappointed some analysts and Apple’s share price dipped briefly.
Tim Seymour, is a Hedge Fund manager at Triogem Asset Management. He says shareholders need to sit tight. This type of deal is going to take some time to pay off, plus it’s hard for Apple to move nimbly.
SEYMOUR: “It’s very difficult for a company of Apple’s size of 500 billion dollar market cap to move the needle in the way that they did when they were a 200 billion dollar company.”
Apple’s deal with China Mobile is a good one says Seymour. But it’s not without obstacles. One is how expensive the iPhone is. In China it sells at between 500 and 700 dollars – much more than other phones.
SEYMOUR: “Competition within this price point is incredibly aggressive and you have Chinese producers that are going to continue to dominate this space… companies I don’t think Apple can compete with.”
Seymour says Chinese customers have preferred Samsung and Lenovo. Another obstacle for the iPhone is that Chinese phone networks are slow. China Mobile rival carriers China Unicom and China Telecom still use out of date 2G and 3G networks – that’s bad news for the high speed 4G compatible iPhone.
With the Apple deal China Mobile is rolling out an ambitious plan to build up to half a million 4G base stations by the end of the year. Alongside ensuring high-speed connectivity, Seymour says China Mobile also needs to make phone contracts cheaper, to help offset the high price of the iPhone.
Yan Cong is a Chinese national living in New York. She says China Mobile contracts are typically more expensive, partly because customers have to pay more for out-of province calls – and they do because China Mobile has the most coverage. Cong felt she had no choice but to switch to China Mobile rival, China Unicom.
CONG: “Unicom network’s 3G provides flat rate phone call for users, which is not available for China Mobile.”
Baohong Sun is a marketing professor at the New York campus of China’s Cheung Kong Graduate School of Business. She says to boost iPhones popularity in China Apple also needs to pay more attention to tailoring its products to meet Chinese consumer needs.
The Chinese government bans on many popular apps like Facebook and Twitter, leaving some Chinese consumers seeing the iPhone as an over-priced computer that can’t do much.
SUN “iTunes is still blocked in China so many people don’t want to spend the money… that is why android system became more popular in China.”
Sun says Apple should partner with Chinese developers to create apps that will appeal to Chinese consumer tastes and interests.
Hedge Fund Manager Tim Seymour agrees. He says that to compete effectively Apple should focus less on short-term profit and more on getting Chinese customers hooked on Apple products.
SEYMOUR: “Apple’s a software company ultimately. You’re getting people into the Apple chain of products… you want to gain these customers through the networks and essentially throughout the apple ecosystem at the expense of some margins, it’s still going to move the bottom line higher.”
Apple’s ability in the long term to achieve the kind of customer loyalty in China that it enjoys in the US and Europe could be another step towards sealing its global dominance.
Poppie Mphuthing, Columbia Radio News.