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iPhone's Slow Boat to China Finally Arrives

By Richard Adhikari MacNewsWorld ECT News Network
Aug 28, 2009 11:28 AM PT

After at least two years of trying, Apple has finally cracked the China market.

iPhone's Slow Boat to China Finally Arrives

China Unicom, the second largest wireless carrier in China, announced on Friday that it will begin carrying iPhones in the third quarter.

The terms of the deal seem to be more favorable to the carrier than those of other carrier deals Apple has managed to strike in the past.

The China Unicom Deal

The news that it had signed a deal with Apple was buried in the depths of a press announcement China Unicom released on Friday.

"On 28 August, the Company and Apple reached a three-year agreement for the Company to sell iPhones in China," the announcement read. "The initial launch is expected to be in the fourth calendar quarter of 2009. This will provide users with brand new communication and information experience."

Apple is keeping quiet; the latest entry in the "Hot News" section of its press page was The New York Times' David Pogue's favorable review of Snow Leopard, dated Thursday.

Cupertino did not respond to requests for comment by press time.

While neither company is apparently ready to say much about the deal, Reuters quoted China Unicom chairman and chief executive Chang Xiaobing as saying iPhones would be priced competitively.

Unicom has bought iPhones in bulk from Apple, Reuters also reported.

In addition, China Unicom will not share revenue with Apple, as other wireless carriers offering iPhones do, according to The Wall Street Journal.

About China Unicom

China Unicom, founded as a government-owned corporation, was established in 1994 by the Ministry of Information Industry. Last year, it merged with China Netcom Group.

Unicom Group holds just over 57 percent of China Unicom; public investors hold just over 13 percent; S.K. Telecom and Telefonica Internacional S.A.U. hold a total of just over 10 percent; and the remaining more than 20 percent is publicly traded on the New York and Hong Kong stock exchanges.

In January, Beijing awarded China Unicom a WCDMA license to expand its business to 3G communications, and, in July, the company signed a US$700 million deal with Ericsson to upgrade its GSM network.

China Unicom plans to cover 335 cities with 3G by the end of the year, instead of 284 as originally planned.

"The Company will continue to push forward the 3G pre-commercial trial and aims for a successful launch of 3G business within the year," reads the China Unicom press release.

The User Experience

All iPhones legally sold in China must exclude their WiFi feature by Chinese law. That's probably because it's more difficult to track Internet users accessing the Web over WiFi, speculated Carl Howe, director of anywhere consumer research at Yankee Group.

"WiFi routers are consumer devices and, if router owners can sneak them onto a broadband carrier, they can send and receive data without the government's knowledge, assuming the broadband connection doesn't have a wiretap," Howe told MacNewsWorld.

The government of China is known to actively censored parts of the Internet it deems pornographic, politically subversive, or otherwise unacceptable. Earlier this year, it had issued a ruling calling for all computers sold in the country to have Internet filtering software pre-installed. After an international outcry, it partially rescinded the edict, but the Green Dam Youth Escort software will still be pre-installed on all computers in schools.

Howe pointed out that, like the government of the U.S. and other governments, the Chinese government retains the right to tap wireless carriers' traffic. "Here in the U.S., it's a requirement of wireless carrier licenses that the government can get a wiretap if they want one, and it's no different in China and elsewhere," he said.

The iPhone's WiFi feature will likely be deactivated, but it probably won't be removed, Allen Nogee, principal analyst for wireless technology and infrastructure at In-Stat, told MacNewsWorld.

That could be because China might want to promote its own technology. "China has its own WiFi standard called 'WAPI,' which could be enabled by China Unicom with a software upgrade," Nogee said.

He also believes China Unicom will promote its own app store to iPhone users. "It's likely that China will not allow the Apple App Store as it currently exists," Nogee said. "Details haven't been announced, but it's likely China Unicom will run their own application store for subscribers."

Thinking Out of the iPhone Box

Disabling the feature may not mean much to iPhone fans in China, who are already looking for ways around the restriction.

"Hopefully, it's just disabled, and there'll be an easy hack to re-enable WiFi," wrote a commenter going by the handle "JKP" in response to an article in the International Business Times that China Unicom had pre-ordered 5 million iPhones. "Lord knows we users in China are used to hacking our iPhones." The carrier denied that story the next day.

"Would be great if there was a way to simply hack the phone and restore WiFi," BCC wrote. "I know that they enable WiFi on a lot of Nokia phones here through hacking also."

A Shot in the Arm for Apple?

Landing the China deal could be a huge boost for Apple, as markets in the developed world, except for Japan, are generally saturated.

China Unicom has nearly 140.4 million GSM subscribers, according to a 2009 interim results announcement issued Friday.

Demand for the iPhone is hot -- Kevin Wang, director of China research for iSuppli, had previously told MacNewsWorld that about 33 million handsets will be sold on the gray market within China this year, and iPhones constitute a healthy percentage of this.

China Unicom will start cautiously with iPhone sales, In-Stat's Nogee said. "My guess is they'll feel a bit uncomfortable with the iPhone initially and will go slow rather than fast, at least at first."

However, fake iPhones will be an ever bigger problem. "These can sell for $200 or less and they don't work very well, but they do look like an iPhone, and in China, status and fashion can be even more important than function," he said.

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