China Could Become Largest Market For Apple Within 24 Months

Speculation by investors over whether China Mobile would begin offering the iPhone grew on Thursday after Apple CEO Tim Cook met with the world’s largest mobile carrier.

China Mobile said the meeting took place at the company’s Beijing headquarters, during Mr. Cooks’ second trip to the country in less than a year, the Wall Street Journal reported.

Gaining access to China Mobile’s more than 700 million subscribers would help Apple expand in China and stave off competition from Android smartphone makers.  The iPhone is currently offered by China Mobile’s smaller rivals, China Unicom and China Telecom.  In November, Beijing approved the iPhone 5 for use on China Telecom and China Unicom’s networks.

“China Mobile’s big advantage is that it serves the tier 2 to tier 5 cities better than Unicom and Telecom, so it would expand China’s market for Apple somewhere around three times.” Peter Misek, a senior technology analyst for Jeffries told CNBC.  “China could become the largest market for Apple within 24 months if that were to happen,” he added.

The China tiered city system is characterized by the city’s economy scale and population size.  Tier 1 cities including Shanghai,  Beijing and Guangzhou.  Tier 2 cities are mostly provincial capitals.

However, China Mobile faces some barriers to offering the iPhone.  China Mobile has said that the iPhone could only come to its network after it introduces a 4G platform, which the carrier hopes to offer in the second half of 2013.  China Mobile currently uses China’s homegrown third-generation mobile technology.

A China Mobile-offered iPhone could also help Apple win marketshare from rivals, Lenovo and Samsung, as well as lower-end smartphone makers in China.  “What’s happening in the smartphone market is that the lower end phones is where the real growth is, and that Chinese white label makers are really the ones stealing that growth from everyone else,” Misek said.

White-label makers make up thousand of small companies that have been providing less affluent Chinese consumers with low-end, cheaper phones that are typically unbranded.  However, as 3G networks are rolled out in China, they are starting to see a decline.  Gartner, a research company, estimates that white-label handset sales dropped 7 percent in 2011 to 186 million units, or 42 percent of all mobile phones sold in China, and will plummet another 30 percent in 2012.

Currently, Samsung is the largest smartphone brand in China with 16.7 percent of the market, followed by Lenovo at 14.8 percent.  Apple has 6.9 percent of the market, according to Gartner.