iPhone 5 Likely To Support China Mobile's Massive 3G Network

The next-generation iPhone could well be the first smartphone from the Apple stable to be considered truly global. According to Sterne Agee analyst Shawn Wu, the iPhone 5 will officially debut in October and support China Mobile’s 3G TD-SCDMA network. ^[1] Unlike the iPhone 4 which came in two variants, one for CDMA and another for GSM, the iPhone 4S was positioned as a global device with a single hardware supporting both technologies.

However, the 4S still did not support China Mobile’s proprietary 3G network which made the iPhone inaccessible to a majority of Chinese mobile phone users despite availability on China Unicom and China Telecom.

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Huge market share opportunity

If the iPhone 5 does come with China Mobile support, which we believe is highly likely given Qualcomm's recent launch of a multimode chipset that supports TD-SCDMA as well as LTE, it would instantly double Apple's addressable market in China. China Mobile has over 670 million subscribers, almost two-third the total number of mobile subscribers in China. Despite not being available on China Mobile’s platform, the iPhone has still managed to capture 19% smartphone market share in China as of Q1 2012 – more than double last year’s share. ^[2]

Apple should be able to market the new iPhone to a larger percentage of Chinese mobile users and further increase its market share. China Mobile recently said that about 15 million iPhone users subscribe to its network despite the lack of 3G support. With 3G support and the availability of the iPhone at subsidized rates, many more China Mobile subscribers should become iPhone users.

Better marketing of the iPhone Chinese consumers will be important and will need to coincide with the launch of the new phone. Apple will most likely upgrade its iOS to include Chinese language support in Siri as well as integrating Chinese social networking sites such as Baidu and Sina Weibo.

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Upside to Apple from a Bigger China Play

Our current estimates for Apple’s market share do not take into account the availability of the iPhone on China Mobile’s 3G network. However, should it happen, the upside could be huge – an almost 18% upside to our current $700 price estimate. This is just the effect of an increase in market share for Apple’s iPhone. However, if carrier subsidies cause Apple to maintain its current pricing, as opposed to the declines that we show, the upside could be much higher.

You can move the iPhone pricing trend line in the chart below to make your own forecast for Apple’s value.

Our assumptions are contingent on China Mobile leading the 3G race in the same way that it has dominated 2G. If China Mobile is unable to leverage its huge 2G lead and convert it into a 3G advantage, the scenario may not play out as described above. Having China Unicom and China Telecom already in the bag may help Apple cover a bit of lost opportunity in China Mobile, but for the China story to play out, its largest wireless carrier must deliver.

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Notes:

1. China Mobile support likely to make Apple’s next iPhone a ‘true world phone’, AppleInsider, June 21st, 2012 [↩]
2. iPhone 4S sales see Apple?s market share in China rocket to 19%: Report, theNextWeb, May 23rd, 2012 [↩]

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