Apple (AAPL): Estimating China iPhone Revenue Potential
Yesterday, Dan Frommer assessed a potential Apple iPhone deal with China Mobile (CHL) or China Unicom (CHU). Last night, Reuters reported several reasons why a China deal isn't imminent, and we responded by saying that while it may not be imminent, it's inevitable.
Context & Ripple Effects
This follows reports that China Mobile is in talks with Apple to carry the iPhone, and the corpus already identifies the friction: China Mobile's chief has confirmed he dislikes the revenue-sharing cut Apple insists on in its existing carrier deals. Reuters reported last night that an agreement isn't imminent; Silicon Alley Insider's response — echoed by a Newsfactor pickup under 'Chinese Carriers Interested in iPhone' — is that while the timing is uncertain, the deal itself is inevitable.
The analytical weight here sits on deal structure rather than dates: Dan Frommer's sizing exercise covers both China Mobile and China Unicom, which matters because the revenue-share model Apple pioneered is precisely what the strongest candidate partner has pushed back on.
First-order effects
- Apple's China revenue estimate rests on terms its lead partner opposes — with China Mobile's CEO confirmed as resistant to revenue sharing, any upside math assumes Apple concedes that cut or walks.
- Until a carrier agreement exists, Reuters' 'not imminent' framing means the entire modeled China opportunity stays at zero shipped units regardless of demand.
Second-order effects
- Assessing both China Mobile and China Unicom gives Apple a two-carrier path into China, letting it play the operators against each other on terms rather than accept a single gatekeeper's conditions.
- If Apple drops the revenue share to close a deal, every carrier in its existing exclusive markets gains a precedent for renegotiating the same split.
Third-order effects
- A China entry on non-revenue-share terms would mark the pivot of iPhone economics from per-subscriber cuts toward straight handset-sales margins in scale markets where carriers hold the leverage.
- How this negotiation resolves becomes the template question for whether Apple's launch-era carrier model survives contact with its largest untapped subscriber base.
The trend: The iPhone's expansion is colliding with the limits of its exclusive revenue-sharing carrier model, and China — where the biggest operator rejects that split — is where the model gets renegotiated.