DailyTech - Over 400,000 Strong, Hordes of Unlocked iPhones In Use In China

Submit News

Gadgets Over 400,000 Strong, Hordes of Unlocked iPhones In Use In China
Jason Mick (Blog) - February 18, 2008 5:36 PM

E-mail

del.icio.us

34 comment(s) - last by robbyjr.. on Feb 20 at 9:56 AM

"The more you tighten your grip... the more (iPhones) will slip through your fingers..."

After much bickering, Apple is currently dead in the water when it comes to official talks about the iPhone with Chinese telecoms. It looks like the issue might be a moot point, though. Most Chinese seem perfectly content to buy the iPhone, unlock it and use it on their current provider without Apple's permission.

While Steve Jobs, Apple Inc. CEO during Macworld 2008 cheered over the fact that over 4 million iPhones have been sold, it likely makes his blood boil to think of all the revenue that his company is loosing to the Chinese unlockers. China Mobile, China's largest cell phone service provider announced the staggering statistic that at least 400,000 unlocked iPhones are operating on its network. The news comes fast on the heels of the report that 1 million unlocked iPhones were in operation worldwide.

In the U.S., Britain, France, and Germany, Apple has signed lucrative deals with telecoms that give it a large slice of monthly revenue, far surpassing any hardware profits. It has aggressively defended its deals and has fought a losing battle to try to "brick" users iPhones who unlock, resulting in a firestorm of litigation.

Meanwhile its impasse in China has left it with few options as it watches the possible revenue from thousands of customers slip through its fingers. Anty Zheng of In-Stat China states, "The shock wave caused by the Apple iPhone has been spreading from the US to China at an unbelievable rate. Savvy entrepreneurs have been purchasing hundreds of thousands of iPhones in the US and Europe, then “cracking” the operating system to allow the device to be used on any GSM network."

Zheng then goes on, "According to China Mobile, the biggest wireless carrier in China, there were about 400,000 cracked iPhones using its cellular network service at the end of 2007, representing one out of every 10 iPhone shipments announced officially by Apple. The figure surprised us as it is fourfold of that we estimated before."

Zheng argues that if Apple were to team up with Chinese telecoms, its success would be unprecedented, surpassing even current unlocked totals. He states, "We have never doubted that the iPhone will achieve greater success than iPod in China if Apple teams with China Mobile to launch its Chinese version. There are two reasons. Firstly, China is different from the US where the smartphone market is fairly limited, appealing primarily to business users, The smartphone market in China, though, is an entertainment-oriented individual consumer market. The main reasons that Chinese mobile users purchase smartphones include entertainment (such as music players, cameras and video) and to access mobile Internet applications (such as IM, e-book, and games). We believe the iPhone will be favored by these consumers as it can better meet such demand."

Zheng also pointed out that unlike the U.S., many current phones already sell for the price of the iPhone or more. He states, "Secondly, high-end handset buyers significantly outnumber high-end MO3 player buyers. We estimate that 20% of handsets sold in China in 2007 cost more than 4,000 RMB (US$533). In another words, there are an estimated 28 million potential users for the iPhone in China."

The report does does not include totals from China Unicom and carriers in Hong Kong, which would likely push the unlocked total even higher. One thing is certain, though, Apple is massively losing out in China to unlockers. What's a fad in the U.S. is fast becoming a juggernaut of a business in China. Apple is left facing mounting pressure to sweeten its terms to Chinese telecoms, or risk missing the boat on one of its biggest opportunities.

Comments

Threshold

Username
Password
remember me

This article is over a month old, voting and posting comments is disabled

..Blood boil...???

By Desslok on 2/18/2008 6:16:27 PM , Rating: 5

Somehow I doubt Steve Jobs is really that worries about the contract side of things. Apple just wants to sell as many iPhones as they can, the contract side can be fixed at a later time.

RE: ..Blood boil...???

By KristopherKubicki

(blog) on 2/18/2008 6:25:12 PM , Rating: 2

At first glance it would seem that way, but Apple gets a percentage of the data packages using iPhones.

Parent

RE: ..Blood boil...???

By Desslok on 2/18/2008 6:30:15 PM , Rating: 2

Correct, but since the iPhone is selling like is no tomorrow why not let the sales continue and work on the contract? I am sure a majority of people would use an "Apple" plan if the price was right.

Parent

RE: ..Blood boil...???

By Griswold on 2/19/2008 4:01:06 AM , Rating: 2

Just that its not selling like theres no tomorrow anymore (see industry reports that expect significant inventory numbers and fluctuating production). European sales are just disappointing - these chinese gray imports dont make up for it.

But you're right, if they'd get rid of this gag&bag scheme, it would sell much better.

Parent

RE: ..Blood boil...???

By Samus on 2/19/2008 4:15:26 AM , Rating: 2

With the iPhone costing 'only' $300, almost the same as an iPod Touch, they aren't making very much money on the hardware. If I remember correctly, it costs Apple about $230 to build the iPhone (bill of materials.)

That gives them $70 profit on hardware.

They probably get that in less than 6 months from each royalty-paying AT&T customer. That means for a 2 year contract, Apple makes FOUR TIMES as much from royalties than they do on hardware.

THAT is why Steve's blood boils.

Parent

RE: ..Blood boil...???

By theapparition on 2/19/2008 6:49:33 AM , Rating: 2

quote:
That gives them $70 profit on hardware.

If you believe the BOM estimates (which I think are pretty accurate BTW), Apple still gets nowhere near $70 profit. You have to include labor costs, overhead, currency exchange rates, marketing, etc. I bet they were really counting on revenue from contracts, which in the end, is free money to them.

quote:
Apple makes FOUR TIMES as much from royalties than they do on hardware.

You pegged it. Although, I'd go on record that it's probably more like 10X.

Parent

RE: ..Blood boil...???

By DASQ on 2/19/2008 4:01:49 PM , Rating: 2

That $270 was months ago was it not? It's probably fallen in the last year.

Parent

RE: ..Blood boil...???

By InternetGeek on 2/18/2008 6:47:24 PM , Rating: 2

Why not just sell them unlocked for a more expensive price and work out the rest from the iTunes store?. If studies are to be believed one you get an iPhone you are more likely to buy sneakers and music from the iTunes store... even in China when you can get any of those for a fraction of the price.

Parent

RE: ..Blood boil...???

By oab on 2/18/2008 7:23:19 PM , Rating: 2

Do you honestly believe the people purchasing an iPhone in china would buy a single thing from the iTunes music store? They can go down to a table on the street and buy 10 cd's for the price of one on the iTunes store.

Parent

RE: ..Blood boil...???

By InternetGeek on 2/18/2008 8:46:10 PM , Rating: 2

It's apple we're talking about here. I'm sure they can wrap it up in a way these people will buy from the iTunes store. Technology is 50% about convincing people to have the latest gadget and always get its original stuff.

Parent

RE: ..Blood boil...???

By robbyjr on 2/20/2008 9:56:40 AM , Rating: 2

You don't know what you're talking about. Better, you don't know about China at all.

I've never seen any other place with the quantity of RR Phantoms and Lambos going around as in China. For people buying goods like that, a mp3 file or anything else you can imagine means nothing.

Parent

RE: ..Blood boil...???

By xsilver on 2/18/2008 7:24:40 PM , Rating: 3

I think apple's thinking is that there are only a certain number of people willing to buy iphones and they dont want to saturate the market so that everybody that wants one has one.

That way they can keep hype high and milk the iZombies for all the $$ they've got.

Maybe apple should lease out iphones instead? $100 upfront and then $30 a month? that would make apple some more $$.

Parent

An offer they can't refuse

By InternetGeek on 2/18/2008 6:25:03 PM , Rating: 2

China Mobile might fing themselves in a position that Apple might not really like: A huge user base that is not paying contracts. The base price of an iPhone doesn't covert what you're getting. The two years of contracts sum up for the rest.

Increasing looses might actually force Apple to negotiate with China Mobile in terms on which Apple doesn't get much for the contracts. Remember Apple is in for making money, not just breaking even. They prefer not to step into the volume market.

Hopefully that Nvidia phone we recently saw will start to show up in the market. I'd rather use that one instead of the iPhone.

RE: An offer they can't refuse

By cheetah2k on 2/18/2008 7:30:24 PM , Rating: 2

The only way Apple will be able to sell the iPhone legitimately in China/Hong Kong, would be on the China carrier's terms.

What the article fails to mention, is that all of these 400,000 iphones would have been sold thru small phone retailers, not thru the carriers themselves, and at marked up prices (approx US$600 for 8gb). In my experience, these shops use their contacts in the US to purchase, and ship in bulk to this region.

Regardless of the Apple->China talks, the iphone remains very popular in Hong Kong (where I am currently living as an expat). I picked up mine in August last year, and the WOW effect has certainly taken over. On my regular shuttle service from home to train, and train to work - I reckon 1 in every 10 people now has an iphone. Considering the large population in this region, Jobs would be a fool not to re-consider pushing it to market sooner rather than later.

On the other hand, while the iphone is popular here, I would suggest that they target this region with a 3G version instead of the standard 2.5G ver. HSDPA networks are extensive, and well priced (for example I pay HK$78 / month for unlimited HSDPA with Smartone Vodafone).

My 2 cents

Parent

RE: An offer they can't refuse

By InternetGeek on 2/18/2008 8:48:43 PM , Rating: 2

I'd do my research again if I were you. Iphones are not sold in China. They are being smuggled in. Even flight attendants are charing a per phone fare for getting the phone into China. Some retailers might be selling it, but they are not buying from the manufacturing plants in China. They are buying from american stores and other markets outside of China.

Parent

RE: An offer they can't refuse

By The0ne on 2/18/2008 9:39:59 PM , Rating: 2

This is true. I was in Xiamen last month and not a single Iphone in the entire level of the shopping malls where they sold electronics, mainly cell phones. My boss and our Engineering director each had their own and people were amazed at it when they saw it. That makes me believe that not so many, and 400k people isn't, have them.

If they have them they bought them illegally for use in China as contracts by both parties have dissolved. As for itunes, I doubt the mass would use it legally as I was pretty amazed at the "black market" side when introduced during my stay there. It's amazing the amount of "copy" items they have for sale there. Amazing to see it first hand I mean, not just reading about it.

Parent

RE: An offer they can't refuse

By audiomaniaca on 2/20/2008 9:44:21 AM , Rating: 2

People in Xiamen might get amazed.

Go to Hong Kong next time and your boss will be just one in the middle of thousands. I've seen people with two (yes, two), one in each hand. Don't ask me what for...

Most of the 400k are there. You can buy it in any corner.

Parent

RE: An offer they can't refuse

By cheetah2k on 2/19/2008 12:00:48 AM , Rating: 2

No need to do any further research, when I'm on the front line. You might want to re-read what I said.

As I said, they are not sold by the carriers, but local businesses (dodgy little shops), after receiving from their friends and families in the US. Also, a correction to what you said, there are no "Apple" retailers selling it as supply is from the US.

Parent

RE: An offer they can't refuse

By jconan on 2/19/2008 1:34:59 AM , Rating: 2

In certain countries in Europe you can just buy the iPhone unlocked. I assume most of them probably are from Europe not the US.

Parent

RE: An offer they can't refuse

By kilkennycat on 2/19/2008 12:34:04 AM , Rating: 2

quote:
Hopefully that Nvidia phone we recently saw will start to show up in the market. I'd rather use that one instead of the iPhone.

That nVidia "phone" was actually only the demo box for the APX 2500. No phone capability, although obviously the appropriate wireless chips can be hooked to the APX core. The initial target OS to support the APX2500 is Windows Mobile. However, no doubt nVidia is building SDKs for the APX 2500 that are OS 'neutral'. I would not be at all surprised if nVidia is in conversation with Jobs on an iPhone/iPod-touch future product using this chip-technology.

Parent

When does the U.S. get unlocked phones?

By amanojaku on 2/18/2008 6:44:09 PM , Rating: 2

quote:
China Mobile, China's largest cell phone service provider announced the staggering statistic that at least 400,000 unlocked iPhones are operating on its network. The news comes fast on the heels of the report that 1 million unlocked iPhones were in operation worldwide.

The article touches on a key point here: unlocked phones are what consumers want. Handset makers are screwing themselves by limiting their phones to certain carriers. Yes, I'm sure there are kickbacks and other incentives to consider, but the RAZR was a clear indication that a phone available from any carrier would be successful. Granted, the RAZR was locked in to each carrier, but it was available from T-Mobile, Verizon, AT&T, Sprint, etc... and look how it took off.

Consumers are unlikely to switch carriers unless there has been a serious issue (billing, signal quality, etc...) Making phones available to all carriers would make it clear which phones are hot and which are not. The choice of carriers would then come down to plans, coverage, and service. And get rid of early termination fees already!