Price War Brewing for iPhone in China iPhone价格战料在中国打响

By newsdoug on March 1, 2012

I’ll end my postings for this first day of March on a lighter note, looking at an entertaining marketing and price war that looks set to break out between China’s second and third biggest telcos, China Unicom (HKEx: 762; NYSE: CHU) and China Telecom (HKEx: 728; NYSE: CHA), as the latter prepares to start selling the iPhone 4S later this month, breaking Unicom’s monopoly on iPhone sales in China since Apple (Nasdaq: AAPL) started selling the popular smartphones in 2007. In a highly anticipated announcement, China Telecom, the smallest of China’s 3 major telcos, said last month it would start taking orders for the iPhone 4S on March 2, and start selling the model for use on its network on March 9. (previous post) That development broke Unicom’s 3-year monopoly on iPhone sales in China, just a couple of months after Unicom itself started selling the 4S. Unicom has been rather lazy during the last 3 years during its monopoly period, failing to aggressively market the iPhone even as sales of the smartphones were one of its few bright spots as it suffered with internal management and operational issues. Now that the honeymoon period is finally finished, Chinese media are reporting that Unicom’s Guangdong unit is preparing a “stealth” attack to try to draw more iPhone buyers to its service even as China Telecom gets set to offer its own aggressive packages. (Chinese article) According to the report from a local publication in southern Guangdong province, Unicom’s Guangdong subsidiary is preparing to offer new incentives in the form of extra memory to new iPhone subscribers who are referred by Unicom’s current iPhone customers. I would expect to see similar moves from Unicom subsidiaries in other provinces in the next few weeks, as they attempt to stop China Telecom from stealing both new and existing iPhone customers. China Telecom is likely to fight back with its own aggressive new packages and other incentives, meaning the next few months could be a very good time for anyone considering an iPhone 4S to sign up for service. On a more serious note, this kind of war could undermine both the top and bottom lines for Unicom and China Telecom. It could also seriously hamper efforts by China Mobile (HKEx: 941; NYSE: CHL), the country’s leading mobile carrier, to bring some momentum to its own laggard 3G network, which suffers from a technological disadvantage as it is based on a homegrown Chinese technology standard with numerous problems. In summary, look for a colorful and also bruising price and marketing war between Unicom and China Telecom in the months ahead, playing to the advantage of 3G cellphone subscribers but bringing a new round of potentially destructive competition to the the telcos.

Bottom line: A new price and marketing war will break out as China Telecom prepares to end Unicom’s monopoly on the iPhone in China, resulting in profit erosion for both.

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