Apple, China Mobile Miles Apart on iPhone Revenue Model

Although China Mobile and Apple (Nasdaq: AAPL) have indicated that they want to work together to bring the iPhone to China, the companies haven't begun formal talks because they reportedly remain too far apart on an appropriate business model.

China Mobile's door remains open to a deal with Apple, the mobile phone operator's chairman, Wang Jianzhou, told reporters in China, as long as the company's customers are interested in having the iPhone offered in the country.

China Mobile provides service to some 380 million subscribers, making it far larger than even the biggest U.S.- and Europe-based carriers. It is also seeing unprecedented growth, adding as many as 7 million new subscribers each month.

Evidence suggests demand is strong within China for the iPhone. Pearl Research recently released a survey that found that 68 percent of Chinese asked were aware of the iPhone. Meanwhile, thousands of so-called gray market, unlocked iPhones are likely already in use in the country.

On Again, Off Again

Apple did not respond to a request for comment on progress of efforts to move into the Chinese market. Reports surfaced in January that talks between the two companies have broken off over the financial terms of any agreement.

At issue is whether Apple will get a significant slice of the monthly subscription revenue that China Mobile brings in after a user activates an iPhone. Because the device is designed to enable e-mail , video and other data-intensive applications, the iPhone's users tend to spend more each month on plans than with traditional phones. In its other agreements, with AT&T (NYSE: T) in the U.S., for instance, Apple shares in the monthly revenue the phones generate.

However, mobile Web surfing and downloading are not as prevalent in China as in other markets. The price of the device itself may be an issue in the country as well. The Pearl Research survey found that many Chinese would not be interested in obtaining an iPhone because of the relatively high purchase price.

Chinese Web site Sina.com has reported that China Mobile balked after Apple asked for 30 percent of the monthly revenue from iPhone subscribers.

Apple has faced some stumbling blocks as it has expanded the iPhone to new markets. In Europe, carriers went to court to ask that Apple be forced to change its policy of granting a single carrier the right to officially support the phone, though such arguments have since been rejected.

Reaching into fast-growing markets is important to Apple if it wants to enable the iPhone to meet or exceed its ambitious growth targets and those of analysts. Apple set a goal for itself of selling 10 million of the devices by the end of 2008, something that may be more difficult to reach in a slowing economy, said telecom industry analyst Jeff Kagan.

While targets may have psychological resonance for investors and the company now, they are not critical by themselves, he told MacNewsWorld.

"It's not like 10 million was some sort of magical place to grow," he added. "The bottom line is that the 10 million iPhone goal was just that, a goal. It isn't a litmus test."

Already There

Still, making a deal in the near term may help Apple keep competitors, such as BlackBerry maker Research In Motion (Nasdaq: RIMM), from establishing too much of a head start in the market. China Mobile already supports the BlackBerry.

Overseas expansion will be necessary to keep iPhone selling at a rate that continues to fuel the enthusiasm for Apple stock the device first inspired when it was launched last year, Pund-IT Research Analyst Charles King told MacNewsWorld.

While it has rolled out in Europe and the UK with strong early demand, "It really opens up the possibilities if it can get into some of those vast and growing markets in Asia," King said.

It's possible the dispute will also come down to how much of a subsidy is offered on the iPhone itself. It's also possible that Apple is not desperate to launch in China just yet given reports that some resellers of the device in the U.S. are having trouble keeping some models in stock.

"The device's price points are still high in more established markets such as the U.S. and even more so in emerging markets," King added.