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Analysis: iPhone 4S signals start of new fight for high-end users
[February 23, 2012]

Analysis: iPhone 4S signals start of new fight for high-end users

BEIJING, Feb 23, 2012 (Xinhua via COMTEX) -- The bell has sounded for a new round of fighting for high-end 3G service subscribers as China Telecom (CHA.NYSE; 00728.HK) announces it is to offer iPhone 4S products as of March 9, which breaks China Unicom's (CHU.NYSE; 00762.HK; 600050.SH) monopoly of Apple's products in the Chinese mainland market.

The market forecasts that while the introduction of iPhone 4S product will help increase China Telecom's 3G user base, the accompanying expenditure on marketing promotion and cell phone subsidies will squeeze profits.

Customers committing to certain contract plans can get free 16G, 32G, or 64G iPhone 4S products in stores designated by China Telecom or its official web portal. The online booking service will be available on March 2. Besides this, Suning Appliance, China's leading 3G chain retailer, which has established a partnership with China Telecom, will also start to accept customers' orders for iPhone 4S products on the same day.


Yang Xiaowei, vice general manager of the China Telecommunications Corp., the parent company of China Telecom, said, "I believe the iPhone 4S that runs on China Telecom's 3G network will be a huge surprise to customers." The share price of China Telecom on the Hong Kong stock market went up 4.07 percent on the news on Tuesday.

Although the iPhone 4S contract plans of China Telecom are little different from those of China Unicom in price, the arrangement for data traffic and voice services of the former is considered better.

The figures show that China's mobile Internet user base reached 431 million by the end of 2011 and the market size topped 86.22 billion yuan, mainly contributed by data traffic as well as mobile applications and services, which account for 42.9 percent of the total.

China Telecom says it gained 2.41 million new 3G service subscribers in January, with the total 3G user base growing to 38.7 million. Whether the introduction of the iPhone 4S will benefit China Telecom in long term is the greatest concern of the market.

In view of the mounting 3G user base of China Unicom after it started to provide iPhone products, as well as the popularity of Apple's products, the market is upbeat about China Telecom's capacity to develop new 3G service subscribers in future. One analyst even predicts the carrier will gain 2 million to 4 million iPhone users in 2013.

But increased expenditure on marketing, management, and cell phone subsidies generated by selling iPhone products may put pressure on China Telecom's profitability. China Unicom subsidized 4.16 billion yuan to its 3G handsets in the first three quarters of 2011, an increase of 2.89 billion yuan and representing 20 percent of sales costs, which was a major factor dragging down its profit growth.

If the market hearsay that China Telecom will spend 2 billion yuan in promoting iPhone 4S products is true, its performance may not be brilliant in the short term.

Moreover, China Telecom has to compete with China Mobile (CHL.NYSE; 00941.HK) and China Unicom in acquiring new cell phone subscribers and maintaining existing users. (Edited by Luo Jingjing, luojj@xinhua.org)

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