"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.

"Let's face it, we're not changing the world. We're building a product that helps people buy more crap - and watch porn." -- Seagate CEO Bill Watkins
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