December 22, 2013: After months of false starts, Apple finally secures a deal with China Mobile to bring the iPhone to the world’s largest telecom company.
With 760 million potential iPhone customers in the offing, the deal shapes up as Apple’s most important yet for growing its brand in China. It’s a market that Apple CEO Tim Cooks says will soon be the company’s biggest.
“China is an extremely important market for Apple and our partnership with China Mobile presents us the opportunity to bring iPhone to the customers of the world’s largest network,” Cook said in a statement when the news broke. “iPhone customers in China are an enthusiastic and rapidly growing group, and we can’t think of a better way to welcome in the Chinese New Year than getting an iPhone into the hands of every China Mobile customer who wants one.”
The move had been long in the making. Apple had been negotiating with China Mobile since the iPhone launched. Talks reportedly collapsed over Apple’s terms, which required revenue sharing.
Demand from Chinese customers certainly existed, though. As early as 2008, a year after Apple announced the iPhone, BusinessWeek reported that 800,000 to 1 million iPhones had gone AWOL after legitimate purchase. It was later claimed that 400,000 of those iPhone were being used, unlocked via hacks, on China Mobile.
Provided these figures were accurate, they represented around 10 percent of iPhones sold at that point. The number even surpassed all iPhones used in Europe at the time.
Still, negotiations between Apple and China Mobile dragged on. They finally started moving in 2013, when Cook met with China Mobile chairman Xi Guohua to discuss “matters of cooperation” between the two companies.
Apple: Big in China
The China Mobile deal coincided with a renewed push into China on Apple’s behalf.
Cook revealed that Apple designed new devices with the Chinese audience in mind. This was arguably most obvious with Apple’s decision to start making larger iPhones. The company turned its back on Steve Jobs’ dislike of big phones (which he complained “you can’t get your hand around“). Apple released the 5.5-inch iPhone 6 Plus — which fell into the phablet category popular among Asian smartphone makers — in 2014.
In addition, Apple committed to an astonishingly rapid expansion of its retail stores. The company set an ambitious (and successful) goal of establishing 40 Apple Stores in China by 2016.
Not everything has been smooth sailing for Apple in China, of course. No doubt, 760 million possible customers sounds like a giant number. But only a fraction of those people find themselves in the position to be able to afford an iPhone.
Battle for the low-end Chinese smartphone market
The iPhone 5c and SE are nods to the lower end of the market. However, Apple never truly embraced the idea of creating a phone to combat cheap Android devices. As a result, one-time Apple ripoff artist Xiaomi dominates the market of people who want iPhones but can’t afford them. And Apple continues to lose market share in China.
Apple also ran into various problems with the Chinese government. In 2014, national security concerns raised in the state-controlled Chinese media resulted in Apple switching to China Telecom’s servers instead of its own to power iCloud for Chinese customers.
Apple also was forced to accept the Chinese government’s demands that it run network safety evaluations on all Apple products before they can be imported into the country. Apple gear additionally got booted off the list of approved state purchases in favor of Chinese-made products. Unpredictability in China has also been credited as part of the reason for Apple’s current stock price dip.
Not all the news has been bad, though. The China Mobile deal got more iPhones into people’s hands as planned. China now makes up Apple’s most profitable market for apps worldwide. Provided Apple can make it through the current trade tariff battles unscathed, this market will once again prove a major asset (and occasional headache) for the company.