Operators in China set to make losses in iPhone battle

January 12, 2014 Leave a comment

Operators in China set to make losses in iPhone battle

Peng Wei-ling and Staff Reporter

2014-01-11

A battle in the Chinese market over Apple’s iPhone is set to heat up next week when China Mobile begins selling the iPhone 5S and 5C after having missed out during the past five years.

China Telecom and China Unicom, which are the main rivals of China Mobile — the world’s largest telecom operator in terms of subscriber numbers — have already slashed prices ahead of China Mobile’s Jan. 17 launch.

China Telecom’s Beijing branch announced the sharpest price cut, selling its 16G iPhone 5S with a two-year contract costing just 1,288 yuan (US$210), which is 24% less than the earlier pricing. In comparison, a 16G iPhone 5S without a contract has been priced at 5,288 yuan (US$870) and an iPhone 5C with the same storage at 4,488 yuan (US$4,490).

China Unicom announced a smaller price cut of 800 yuan (US$130) or 15% less for a 16G iPhone 5S sold with a contract.

Meanwhile, China Mobile aims to focus on iPhones and fourth-generation (4G) mobile phone services to stage a comeback after losing out in the 3G business. Despite its 70% market share in China’s mobile service market built during the 2G days, China Mobile failed to establish its dominance in the 3G market because of its decision to adopt an independently developed TD-SCDMA technical standard, which was not commonly accepted around the world.

Analysts said that although China Unicom and China Telecom could compete by lowering prices after China Mobile’s long-awaited entry into the market, they would feel the impact on their profits, given the high subsidies they were paying for iPhones.

They also forecast that China Mobile would see a similar impact on profits, with Colin McCallum, an analyst at Credit Suisse in Hong Kong, predicting a 9.1% drop in net profits for the operator, citing the projected subsidies of 5.3 billion yuan (US$876.2 million) for iPhones.

Both Citigroup and Mizuho Securities also forecast a 10% drop in China Mobile’s net profits this year, including the 7% caused by the subsidies on iPhones.

The growing competition among the three telecom operators has already begun eating into their profits, with China Mobile posting declining margins during the first nine months of last year.

Filed under TMT Trends

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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