Qualcomm Key on China Mobile iPhone Deal 中国移动能否引进iPhone关键要看高通

By newsdoug on June 25, 2012

China Mobile iPhone deal moves closer Wireless giant China Mobile (HKEx: 941; NYSE: CHL) is sending out some interesting new signals that look like positive developments in its stalled iPhone deal with Apple (Nasdaq: AAPL), as well as its drive to develop its e-commerce business. Let’s look at the iPhone development first, as it’s the one with the most potential to give a much-needed boost to China Mobile and its poorly performing 3G network, which has suffered from technical problems and also lackluster promotion by China Mobile itself.

Local media are quoting China Mobile’s new Chairman Xi Guohua saying the main stumbling block preventing his company from signing an iPhone deal with Apple lies in chip maker Qualcomm (Nasdaq: QCOM), rather than in China Mobile or Apple. (Chinese article)

People who follow China Mobile know that its 3G network is based on a homegrown, problem-plagued standard known as TD-SCDMA, which isn’t used anywhere outside China. In addition to technical problems, the standard’s confinement to China means that any company making handsets or networking equipment for China Mobile’s 3G network needs to spend considerable time and resources to develop products with very limited sales potential since the technology can’t be used in any other market.

China Mobile and Apple have been in talks for more than a year now to create a TD-SCDMA iPhone, but the 2 sides never seemed able to reach a deal. (previous post) I personally had assumed that Apple was reluctant to commit big resources to developing a TD-SCDMA iPhone due to the limited sales potential; but now this latest disclosure by Xi seems to indicate that China Mobile and Apple have actually reached a deal and just need Qualcomm to develop a chip that can be used in TD-SCDMA iPhones.

If that’s the case, I feel fairly confident that Qualcomm could soon develop such a chip, since it wants to maintain good relations with China Mobile and the China market in general. Accordingly, there’s still hope for a China Mobile iPhone deal by the end of this year, which could greatly help to jump-start China Mobile’s 3G business that is rapidly losing market share to more nimble rivals China Unicom (HKEx: 762; NYSE: CHU) and China Telecom (NYSE: CHA; HKEx: 728).

In the other news big for China Mobile, media are reporting that the company and UnionPay, operator of China’s leading network used to settle electronic money transfers, have reached an agreement to unify their standards for electronic payments. (Chinese article) In this case the reports say that China Mobile has agreed to drop its own standards for processing electronic payments and use UnionPay’s standards instead. This looks like a wise move, as UnionPay is clearly China’s leading company for electronic payment processing, and thus UnionPay’s support would be crucial for China Mobile’s development of a successful e-commerce business.

This agreement also bodes well for UnionPay itself, which I’ve previously predicted could announce plans for a dual IPO in China and Hong Kong by the end of this year (previous post), providing an attractive, high-growth investment opportunity in China’s financial services sector.

Bottom line: China Mobile’s latest comments indicate an iPhone deal is still possible and likely by year end, while its e-commerce drive should get a boost from a new agreement with UnionPay.

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