Massive uncertainty looms around the future of Apple’s iPhone as Apple hits a new pothole in its rough journey to release iPhones in the Chinese subscriber market. The reason behind this ambiguity is that the trade-mark “i-phone” for mobile handsets in China is already owned by a Chinese electronics firm Hanwang Technologies Co., thereby making it illegal for Apple to sell the iPhones in China. In late 2002, when Apple applied to register the iPhone trade-mark in China, its application only covered computer hardware and software, and not mobile phones.
While very limited news regarding Apple’s attempts to enter the Chinese markets is available, there has surfaced a lot of evidence suggesting that Apple will enter China by the 4th quarter of this year, if not sooner. One of the most compelling pieces of evidence is the article by MacWorld which provides that a Chinese government organization is reporting on its web site that an Apple handset has been approved. This device was reportedly cleared by the State Wireless Inspection Centre in May.
Recent “checks” by Wedge Partners, an independent equity research firm including veterans of Friedman, Billings, Ramsey, also indicates that China’s Ministry of Industry and Information Technology, MIIT, have received “the iPhone application for handset testing.” Consequently, the Wedge analysts believe that the iPhone will soon be receiving a network access license.
Likewise, according to Cynthia Meng, the Bank of America/ Merrill Lynch analyst, the “industry checks” indicate China Unicom, a local carrier, and Apple have “most likely reached a deal for an exclusive 2-plus year agreement” on distribution of the iPhone in China in conjunction with the wireless carrier’s commercial scale 3G service launch in the fourth quarter. In addition, some other sources indicate that Apple has posted a job ad on its website for a Beijing-based role overseeing iPhone training across Asia.
Moreover, a very recent report by JLM Pacific Epoch, an independent research firm focused exclusively on China, reports that a Shenzhen-based unit of Taiwan-based contract electronics manufacturer Foxconn has begun mass production of a customized version of the Apple iPhone 3G to be sold by China Unicom.
Even though there have not been any formal announcements either by Apple or China Unicom, there is a strong likelihood that such news will be released in a few weeks time. Some experts suggest that the major obstacles keeping the iPhones out of China can be traced back to China’s ban on the WiFi function in cellphones, and the Apple’s insistence on running the App Store in China. It is due to the fears over IP-telephony and for the support for WAPI, a domestic rival for WiFi, that the Chinese telecom regulations have banned the use of WiFi functions in mobile phones.
What is ironic about this situation is that the iPhone is already a hot item in China’s gray market as there already are 1 million unlocked and illegally smuggled iPhones in China. However, contrary to the popular expectation of the success of iPhones in China, a senior consultant of Frost & Sullivan, Wang Yuguan, feels that the WiFi-disabled iPhone will significantly reduce its appeal to consumers and will keep off many prospective users. While the future of iPhones in Chinese markets cannot be predicted with surety, it is probably safe to assume that if Apple agrees on terms with China Unicom, iPhone sales will gain a strong foothold in Asia, potentially 138 million subscribers.