iPhone Subsidies Evaporate In Unicom Pre-Orders
Apple’s (Nasdaq: AAPL) highly anticipated iPhone 6 could face an uphill climb in China when it gets released next week, at least based on the first figures I’ve seen for how much the model will cost. According to the latest reports, China Unicom (HKEx: 762; NYSE: CHU), the nation’s second largest carrier and Apple’s oldest partner in China, will sell the new iPhone 6 for a starting price of 5,288 yuan, or about $860. That would be significantly higher than the price tag of $750 that many believe will be the iPhone 6’s starting price when it goes on sale in the US later this month.
Of course most of this is speculation, since the highly secretive Apple hasn’t formally announced anything about the highly anticipated unveiling of the newest iPhone that looks set to occur next Tuesday. I haven’t seen any reports of a simultaneous event set for China. But the world’s largest mobile market did finally make it onto Apple’s global launch map with the debut of the iPhone 5S a year ago (previous post), and I expect that many Chinese reporters will get a last-minute invitation for a parallel launch event for the iPhone 6 in Beijing early next week.
While much of the talk so far has been speculative, media did report earlier this week that leading Chinese telco China Mobile (HKEx: 941; NYSE: CHL) had begun taking pre-orders for the iPhone 6, though no prices were given. Now they’re reporting that the Beijing branch of Unicom has also formally begun taking orders, with the starting price of 5,288 yuan, and another model for the higher price of 6,288 yuan. (Chinese article)
The reports say the figures are for people who sign contracts with Unicom, and that the 4G smartphones will be delivered on September 19. Of course it’s always possible that Unicom will roll out plans with cheaper prices for the new iPhones after the official launch. We also have yet to see what China Mobile or the nation’s smallest carrier, China Telecom (HKEx: 728; NYSE: CHA), will do in terms of pricing for the new iPhones.
But this early indicator from Unicom certainly doesn’t look too encouraging for Apple for a number of reasons. The biggest lies in the broader Chinese telecoms landscape, which has seen Beijing call on all 3 carriers to sharply reduce their spending on subsidized handsets in an effort to improve their profits. That imperative has been followed by other signals indicating Beijing may pressure the telcos to specifically target foreign models like the iPhone for reduced subsidies. Instead, the companies could be pressured to use their limited subsidy funds to support domestic brands like Lenovo (HKEx: 992) and Huawei. (previous post)
Unicom’s relatively high price also looks worrisome because it should be able to buy its iPhones at relatively low wholesale prices compared with the other Chinese telcos. That’s because Unicom uses the most widely accepted global 4G standard, meaning the version of the iPhone it’s using will see big worldwide demand and thus should carry the lowest wholesale prices. By comparison, the iPhone 6 that will be sold by China Mobile uses a homegrown Chinese standard that has very limited demand outside China, meaning those phones will probably carry a much higher wholesale price.
In summary, this initial price for pre-orders indicates that Unicom may provide little or no subsidies for the iPhone 6 after the product officially launches. That doesn’t mean that it won’t eventually offer some kind of price support, and it’s also quite possible that China Telecom and China Mobile could offer their own strong subsidies. But given the current pressure on the telcos to reduce promotional spending and to support domestic handset brands, I wouldn’t be surprised to see very little subsidies from any of the telcos when the iPhone 6 makes its China debut.
Bottom line: New initial pricing for the iPhone 6 indicates China’s 3 telcos could sharply reduce their subsidies for the phones, which could sharply reduce demand when the models go on sale later this month.
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