China Telecom to sell iPhones; China Mobile still months away

HONG KONG Tue Feb 21, 2012 10:15am IST

A policeman looks out from a balcony as the crowd is dispersed from the front of an Apple store in the Beijing district of Sanlitun January 13, 2012. REUTERS/David Gray

A policeman looks out from a balcony as the crowd is dispersed from the front of an Apple store in the Beijing district of Sanlitun January 13, 2012.

Credit: Reuters/David Gray

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HONG KONG (Reuters) - Apple Inc (AAPL.O) has signed with China Telecom (0728.HK) to sell its iPhone in China from next month as it looks to boost its flagging share of the world's biggest mobile phone market.

While Apple has now signed up with two of China's big three carriers, the biggest, China Mobile Ltd (0941.HK), with more than 600 million subscribers, doesn't yet have compatible technology.

China Mobile has been aggressively negotiating with Apple to sell the iPhone, but it uses a home-grown proprietary 3G technology called TD-SCDMA that Apple doesn't support. It is, however, trialling its 4G TD-LTE network, with a commercial launch expected late this year or early in 2013, which will serve as a precursor to a deal with Apple.

Apple's smartphone market share in China, where the number of mobile phone users will top 1 billion this year, has fallen in the last two quarters, and it ranked fifth in October-December with 7.5 percent, overtaken by fast-growing local firm ZTE Corp.

"Apple's iPhone market share in China will be quite steady after its deal with China Telecom," said Jane Wang, an analyst with Ovum in Beijing.

"The deal is bound to boost iPhone sales, but telecom operators won't be giving up the mid- and low-tier smartphone market, and sales of those phones will still be quite strong."

China Telecom, valued at more than $46 billion but still ranked the smallest of China's big three carriers, said on Tuesday it would take online applications for the iPhone 4S from March 2, and aimed to commence sales on March 9, bundling a phone with a service contract.

It follows China Unicom (0762.HK) in striking a deal to sell the popular iPhone in a mobile market where the total number of subscribers rose 1.2 percent last month to 987.58 million.

China Telecom said it would increase marketing following the launch of the iPhone 4S, which should boost its long-term sustainable growth, but could squeeze short-term profitability.

In the first nine months of last year, China Telecom's net profit rose 10 percent to 13.86 billion yuan, beating China Unicom's 0.28 percent rise and China Mobile's 5.4 percent gain.

Chinese firms such as ZTE and Huawei Technologies HWT.UL are gradually shifting up towards the higher end of the market, unveiling more feature-packed smartphones.

"China Telecom will be doling out significant subsidies for such high-end handsets to boost sales, and this will have a lot of pressure on its profit this year," said Kelvin Ho, an analyst at Yuanta Securities.

"I expect the deal to have a positive impact on China Telecom's financial results next year," he added.

China Telecom shares rose as much as 2.3 percent, and last traded up 1.1 percent at HK$4.47. outperforming the broader Hang Seng Index .HSI, which was down 0.4 percent fall.

Analysts predicted last week that China Telecom would sell about 1.4 million iPhones this year if it could reach a deal with Apple by May, rising to 2-4 million new iPhone users in 2013.

"iPhone 4S has been an incredible hit with customers around the world. We're thrilled to be launching iPhone 4S with China Telecom and can't wait to get it into the hands of even more customers in China," Apple spokeswoman Carolyn Wu said.

Apple is also embroiled in a lawsuit in China with a local company over the iPad name and has had issues at suppliers' factories over wages and working conditions.

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(Additional reporting by Donny Kwok, writing by Anne Marie Roantree; Editing by Ian Geoghegan)

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