China Unicom strikes deal for iPhone

After months of speculation, China Unicom closed a deal to bring Apple's iconic iPhone to the Chinese market--the world's largest in terms of subscribers. China's second largest wireless operator said the three-year deal will allow it to buy iPhones from Apple on a wholesale basis; the companies are not going to use Apple's customary revenue-sharing model.

China Unicom CEO Chang Xiaobing said the company will offer both the 2G and 3G versions of the iPhone beginning in the fourth quarter. However, the phones' WiFi functionality will be disabled, as required by Chinese regulations. China Unicom said it would subsidize the cost of the device to make the retail price competitive, but the company did not disclose specific pricing information. Interestingly, according to Silicon Alley Insider, China Unicom's deal for the iPhone is not exclusive, marking another break from Apple's iPhone playbook.

China Unicom is hoping the iPhone will give it an edge in the competitive Chinese market. Its larger rival, China Mobile, announced a deal earlier this week with HTC for TD-SCDMA phones, including at least one Android phone. China Unicom runs a W-CDMA network. Additionally, China Telecom, the country's third largest operator, is currently in talks with Palm and Research In Motion to offer their respective smartphones, according to an IDG News Service report.

Analysts said it was unclear what the net benefit to China Unicom would be.

"Many foreign operators have seen their EBITDA margins fall after launching iPhones," Marvin Lo of Daiwa Securities told Reuters. "So I am concerned China Unicom's margins could also come under pressure." Other analysts however saw an upside for China Unicom and Apple.

"Although the China Unicom deal does not come as much of a surprise, we believe a formal announcement with specific timing of a launch may be viewed as a modest positive," UBS analyst Maynard Um wrote in a research note. Um said while it is difficult to gauge what the demand will be like for the iPhone in China (where many customers already use unlicensed iPhones on GSM networks), he wrote that there could be an "upside" of 1 million iPhone unit sales for Apple in the fiscal year for 2010 (which ends in September).

"We continue to view international expansion and partnerships with new wireless operators as a key to driving continued iPhone ... momentum," Um said.

For more:
- see this Silicon Alley Insider article [1]
- see this WSJ article [2] (sub. req.)
- see this Reuters article [3]
- see this IDG News Service article [4]

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