Yoshida in China: Does Apple need China Mobile?

The tech world is abuzz with speculation about a TD-SCDMA version of Apple iPhone, whose launch is anticipated later this year to specifically target China Mobile subscribers. However, I don’t think now is the time for Apple to move into the TD-SCDMA market.

In my “Yoshida in China” column on Wednesday (Aug. 22nd), I asked: “Does China Mobile need Apple?”

Today, I’ll flip the question: Does Apple need China Mobile?

At first glance, China Mobile, which saw its corporate earnings and average revenue per user (ARPU) slide in the first half of this year, surely looks like it could use some help from Apple’s iPhone.
 
But Apple won’t provide any help to China Mobile unless Apple is: a) willing to develop a new iPhone version integrated with a TD-SCDMA modem; and b) prepared to jump into the bloodbath competition of China’s smartphone market.
 
And here’s the reality: Apple isn’t inclined to do either.

In the most recent press release by IHS iSuppli, a market research firm, analyst Kevin Wang, director of China electronics research, lamented that “Among all the international smartphone brands competing in China, Apple is the only one not offering a product that complies with the domestic TD-SCDMA air standard.” He described the situation as “a huge disadvantage” for Apple, because “TD-SCDMA represents the fastest-growing major air standard for smartphones in China, with shipments of compliant phones expected to rise by a factor of 10 from 2011 to 2016.”

I couldn’t disagree more.

In my opinion, Apple doesn’t need China Mobile. Further, Apple will have little to gain by jumping in on the increasingly crowded TD-SCDMA smartphone bandwagon – especially now. The fact is that iPhone competitors are well ahead of where iPhone is today in China’s mobile market.   Samsung already offers several smartphone models that work in China Mobile’s 3G networks; China’s home-grown mobile phone brands are accelerating their smartphone rollout at a heavily discounted price as we speak.

Qualcomm’s pending TD-SCDMA chipset isn’t a good enough reason for Apple to play “Me, too” in China Mobile’s TD-SCDMA market.

It is true that, although it’s the world’s largest cellular network operator based on subscriber numbers, China Mobile has only 10 percent of 680 million subscribers on 3G contracts. In terms of 3G conversion, China’s mobile giant is lagging far behind rival operators in China. Thirty-five percent of China Telecom users are already using 3G, and a little over quarter of China Unicom subscribers are on 3G contracts.

It’s easy to blame the slow pickup of 3G users in China on China Mobile for their decision to go with a proprietary standard nobody else is using. But China Mobile isn’t going to change its mind, and we shouldn’t be dwelling on that particular what-if.

My advice for Apple is not to waste time playing catch-up with the rest of the TD-SCDMA smartphone guys. Sit tight and look ahead. Wait ‘til China Mobile starts building out the TD-LTE (4G) network in 2013.

China Mobile's TD-LTE spec requirements
Little discussed in the Western media is the LTE modem spec requirements set forth earlier this year by China Mobile. The world’s largest cellular operator hopes to change the game by stipulating that the new TD-LTE modem, first, needs to be able to operate on TD-SCDMA and GSM inside China. Further, it requires the TD-LTE modem to offer roaming capability on 4G and FDD, not to mention 3G and WCDMA.
 
Such an ambitious multi-mode, multi-frequency TD-LTE modem strategy will effectively save China Mobile from stagnation in its current proprietary 3G rut. This will allow their upcoming TD-LTE phones to become interoperable with 2G, 3G and 4G networks anywhere in the world.

And that’s precisely when Apple should move into the China Mobile market as a leading supplier of truly multi-lingual iPhones.