MASS APPEAL: Technophiles around the world have snapped up Apple's new iPhone for its array of multimedia functions

Meanwhile, network operators could benefit from an increased demand for data services with the new iPhones as well as have more opportunities to generate revenue from advertising, the Financial Times report said. Analysts say this new revenue model could also lead to lower prices and whet the appetite of Chinese customers for the 3G smartphones when they are sold in the country.

Eastern flow

While many Chinese customers eagerly anticipate the sale of the country's first 3G iPhones, some already have access to multimedia functions on older Apple handsets. About 400,000 older iPhones have found their way to China through underground channels, according to In-stat Group, a global market research company. The original iPhones were usually sold with a SIM-card lock in place that prevented the use of SIM cards on operators' networks with which Apple did not have agreements. But "hackers" successfully unlocked the SIM cards, letting people in other parts of the world use the devices. Because Apple does not have agreements with China's network operators, customers here can only use the older "hacked" iPhones that generate no post-sale services for Apple.

Salespeople at Kemao Shopping Mall told the Economic Information Daily that growing demand for the old 8-gigabyte and 16-gigabyte iPhones have pushed up their prices to 4,850 yuan ($710) and 5,850 yuan ($856), respectively. They said their store is running out of the old iPhones.

In-stat's report also said the iPhone is popular in China, because of its combined music and video player, cellphone and Web browser, which all appeal to Chinese technophiles. Han Shaochao, a senior analyst at Bayesconsulting, told the Economic Information Daily that iPod users looking for multimedia functions constituted the majority of iPhone buyers in China.

With its elegant touch-screen interface, the iPhone has won over a big chunk of high-end, status-conscious users, although in China it is not yet ready to shake the grip of well-established cellphone makers such as Finland's Nokia Oyj and South Korea's Samsung Electronics Co. Ltd., Han said.

If Apple starts selling its 3G iPhone handsets in China, the prices of the older models would fall dramatically, Han said. A product launch here would also give further impetus to the development of the country's market for 3G services, Du from Bayesconsulting said. Multimedia devices could tempt more 2G customers to switch to 3G systems that represent the future of the country's mobile service, he told the Economic Information Daily.

Commercial trials for China's new 3G network, based on its homegrown TD-SCDMA standard, started in eight cities on April 1. But users have complained about the service, because it is incompatible with the 2G-standard GSM that still prevails in commercial use. A lack of service features also dampened their enthusiasm. For example, real-time video calling services were possible only when both the caller and the receiver used TD-SCDMA handsets.

Because mainly high-end users purchase the trendy but expensive multimedia iPhones, their dependence on the device's music and video capabilities will increase the demand for 3G services in China, Du said. The iPhone's expansion here could potentially add more 3G customers, he said.

Doorway to China

Apple clearly has an interest in China, the world's largest wireless market by subscribers. Despite the popularity of the new iPhone in the United States and Europe, its global sales in 2007 only amounted to what Nokia made in only one week in worldwide sales. This was largely because Apple has been absent from the Chinese market, a report by the National Business Daily said. Last year, Nokia sold 70.7 million handsets in China out of the total 437 million handsets it sold globally.

But Apple has had a bumpy ride trying to get into China. At the end of last year, the computer maker held talks with China Mobile Communications Corp., the country's largest mobile carrier, to introduce the iPhone to China. Gao Nianshu, General Manager of China Mobile's Data Department, told a press conference in January that the talks broke off, because Apple wanted 20-30 percent of the data service revenues generated by locally sold iPhones.

Zhang Yanling, a senior analyst at Shanghai-based iResearch Co. Ltd., told the Economic Information Daily that as a dominant player in the country's telecommunications market, China Mobile would continue to have a strong position in negotiating with Apple. But the Chinese operator would not likely make concessions on data service revenues, which would be much higher than what it received for the sales of iPhones, he said.

Apple is also determined to get a piece of China's lucrative wireless business. Wang Jianzhou, President of China Mobile, said at the World Economic Forum held in Davos, Switzerland in January that the biggest barrier blocking the sale of iPhones in China was cleared when Apple abandoned its revenue-sharing scheme in launching the 3G iPhone. But other technology obstacles remained, he said.

One of the biggest problems now lies with the network. China's existing 3G platform that the new iPhones could run on operates on the WCDMA network, the prevailing 3G standard in Europe. Although China Mobile is developing its 3G platform on TD-SCDMA, the two networks are incompatible.

A report by Bayesconsulting said that given China Mobile's market advantages, Apple would be unlikely to switch to the country's other mobile operator, China Unicom Ltd., which plans to obtain a WCDMA license. The report also said Apple could tailor a new version of its 3G iPhones to China's TD-SCDMA network. In the meantime, China Mobile could enhance its appeal to domestic 3G customers by incorporating the popular iPhone into its TD-SCDMA system, it said.