With Two Chinese Carriers in Tow, Apple Targets China Mobile

Apple (NYSE:AAPL) will start reaping benefits as China Telecom (NYSE:CHA) starts selling the iPhone 4S next month. ^[1] With this deal, China Telecom joins China Unicom (NYSE:CHU) to become the second operator in China to offer the iPhone with a contract. This is a big win for Apple too as it will help expand its Chinese presence. Meanwhile, a deal with China Mobile (NYSE:CHL), the largest wireless carrier in the world, is still in the works and will be the most desirable for Apple given China Mobile’s huge customer base. Our $550 price estimate for Apple stock is about 5% above the current market price.

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Apple to Expand Base in China

According to a recent report, expensive smartphone vendors such as Apple lost smartphone market share in China for the second consecutive quarter in the October-December period while cheaper smartphone players such as Huawei and ZTE gained share. ^[2]

With the China Telecom deal, Apple will have access to around 36 million 3G subscribers – a significant number. Apple already sells the iPhone with a contract on China Unicom’s network, which has roughly the same number of 3G subscribers. And now with this deal, it can double its addressable market in China.

All Eyes on China Mobile

Apple’s next target will be to sell the iPhone on China Mobile’s network, the largest wireless provider in the world with more than 600 million subscribers. Although Apple has been in talks with the carrier for years, a significant bottleneck is the iPhone’s lack of compatibility with China Mobile’s home-grown TD-SCDMA network.

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1. China Telecom to sell iPhones; China Mobile still months away, Reuters, February 20th, 2012 [↩]
2. Apple’s iPhone loses China market share, Reuters, February 17th, 2012 [↩]