Did Apple Take the Slow Boat to China?

When Apple (Nasdaq: AAPL) officially released its iPhone in China last week, it presented Chinese consumers with what could be a difficult decision: Pay more for the official device --which currently lacks WiFi -- or obtain a cheaper, WiFi-enabled device from the gray market.

With some 700 million mobile-phone subscribers, China is the largest untapped market for the iPhone, and holds the potential to expand Apple's global market share dramatically.

Yet the company's entry into that market has been fraught with challenges.

A Temporary Ban

There could be as many as two million unauthorized iPhones already in use in China, according to many press accounts. Those unlocked devices are WiFi-enabled and reportedly can be significantly cheaper than the 4,999 yuan (US$730) to 6,999 yuan ($1,025) prices set by China Unicom, Apple's authorized Chinese partner.

The Chinese government placed a temporary ban on WiFi in iPhone-type devices, which caused Apple to manufacture its first round of products without that critical feature. That ban was reportedly lifted in May, according to the Associated Press, but now Chinese consumers are faced with the result.

'A Fairly Severe Disadvantage'

"I think what they wanted to do was comply with the local government, but this is a lesson that governments are incredibly fickle, and anyone can end up on the wrong side of a government decision," Rob Enderle, president and principal analyst with the Enderle Group, told MacNewsWorld. "It could have happened to anyone, but this time it happened to Apple."

The result, however, is that "it will put them at a fairly severe disadvantage," Enderle added.

The good news, however, is that "Chinese buyers generally will pay more for brands they recognize as valid," Enderle noted. "There's so much junk in that market, and piracy levels are so incredibly high, consumers will often pay more for a bona fide brand."

A Line of 300 Buyers

Indeed, though Chinese consumers' reception to the release wasn't anything like the frenzy that met the iPhone's arrival in the United States two years ago, there were still significant crowds lined up to obtain the new, official device, Jeff Gamet, managing editor of The Mac Observer, pointed out.

Some 300 consumers lined up at China Unicom's flagship Beijing store, Gamet noted, despite cold temperatures on Friday night.

"The reason this first batch came out without WiFi is simply because Apple was already ramping up production when China decided to lift the ban," Gamet told MacNewsWorld.

Nevertheless, it seems likely the next batch of iPhones sold to China will have the feature built in, he added.

'That's Still Saying a Lot'

Overall, the partially handicapped nature of the iPhone's official Chinese debut will have a minimal impact on the device's prospects in the long run, Gamet asserted.

"A lot of the iPhones people can get through the gray market have WiFi, and lots of people will buy those," he explained. "But China is a really big country, and lots of people are still lining up to buy the device through legitimate channels, even without WiFi.

"For a country that's had access to gray market iPhones pretty much since the iPhone was originally launched -- and at cheaper prices -- that's still saying a lot," he added.

'A Big Boost' Globally

"China is one of the largest markets in the world for cellphones," Gamet concluded, "so this is going to be a big boost for iPhone market share worldwide."

Now that Apple no longer has to make a special version of the device for China, it could conceivably roll the next -- WiFi-enabled -- generation into production any time, he added.

Apple did not respond by press time to MacNewsWorld's requests for comment.

'Worse Problems to Have'

"Wifi is new and hot and has the potential to transform wireless for voice as well as data," wireless and telecom analyst Jeff Kagan told MacNewsWorld. "However, there are many questions and much uncertainty."

Apple wanted "to grow and move in China," Kagan noted, but the lack of WiFi won't hurt it in the long run.

"When this issue is put to rest, they will make whatever changes they need; in the meantime, they win market share," he explained.

"The worst that will happen is new customers then want an upgrade," he predicted. "There are much worse problems to have."