Approximately 1 million unlocked iPhones brought into China from overseas are being used on China Mobile Communication Corp.'s network, even though the iPhone has not officially made its debut in the world's largest mobile phone market, an analyst said July 7.

"According to our statistics, approximately 1 million unlocked iPhones are running on China Mobile's network now," Kevin Li, an analyst with In-Stat China specializing in telecom research, told Interfax.

The figure is surprisingly high considering that the iPhone's total worldwide unit sales as of the end of March amounted to about 5.4 million units, according Apple statistics.

The number of unlocked iPhones used in China might be even larger, Li said, because iPhones are also used on China United Communications Corp.'s (China Unicom) network, but data on the number in use on the network is unavailable.

The number of unlocked iPhones potentially in use in China has more than doubled in the last six months. A report released by In-Stat in February said that about 400,000 unlocked iPhones were running on China Mobile's network at the end of 2007.

"With so many iPhone owners already using China Mobile's services and driving up data traffic, China Mobile is probably in no rush to officially introduce the iPhone in China," Li said.

"The revenue sharing model that Apple has with carriers in other countries is infeasible in China because China Mobile, a strong player, is unwilling to give away its service revenues. Apple is probably reluctant to work with China Unicom instead, because China Unicom has a smaller subscriber base," he said.

Li said he did not think it would be beneficial to Apple to directly sell the iPhone through its future retail stores in China, the first of which is scheduled to launch in Beijing in August. "If it sells through its own retail store, the price of the iPhone would probably be very high and unattractive."

Apple could lower the retail price of the iPhone by working with a wireless operator, since the operator could subsidize the cost of the phone, Li said. In such a scenario the wireless operator would purchase iPhones from Apple and resell them to consumers at a lower price, making back the difference from service fees.

"It is interesting to see how the iPhone could enter China. It will probably enter through a phone customization deal with China Mobile, which means the iPhone will carry some embedded shortcuts to China Mobile's value-added services and subscribers must sign contracts to receive cheap phones."

"However, Wi-Fi for mobile phones is restricted in China and Apple would have to disable this function on the iPhone. This will make the official iPhones less attractive because many applications will not be supported well," Li said. For example, Apple's iTunes Music Store service would not be well supported without Wi-Fi.

The 1 million unlocked iPhones currently used in China all have Wi-Fi, which allows for the fast download of Web pages and music at Wi-Fi hotspots, he said.

Apple Inc. launched an EDGE (enhanced data rates for GSM evolution) version of the iPhone, a product that blends the iPod MP3 player and a mobile phone, in the United States in late June last year.

The iPhone later debuted in other countries such as the United Kingdom, Germany and France. In most of these countries, mobile operators agreed to give a portion of their monthly service revenues from iPhone customers to Apple in exchange for being the exclusive iPhone distributors.

China Mobile's negotiations with Apple over iPhone sales reportedly came to a close last December because the two sides could not reach an agreement on the division of revenues.

However, recent reports have stated that Wang Jianzhou, chairman of China Mobile, said the largest barrier to China Mobile-Apple cooperation has been eliminated because "Apple no longer insists on revenue sharing."

About one month ago, AT & T announced that it would no longer share monthly revenues with Apple for the new 3G version of the iPhone. Instead, the wireless carrier will resell iPhones for a lower cost and make back the difference on service fees. It also introduced more expensive data packages for the 3G iPhone.

Apple will begin selling the 3G iPhone on July 11 in 22 countries and regions, including Australia, Austria, Belgium, Canada, Germany, Hong Kong, Japan and the United States. The iPhone 3G comes in two models, an 8 Gigabyte (GB) model priced at $199 and a 16GB model priced at $299.

Li said that the 3G iPhone will not be introduced to China until China has a WCDMA 3G network in place.

Apple aims to sell 10 million iPhones worldwide by the end of this year.

Source:INTERFAX-CHINA