Putting the Apple-China Mobile Deal Into Perspective

After years of speculation, the long-awaited deal is finally in the bag. China Mobile (NYSE: CHL  ) will take pre-orders for Apple's (NASDAQ: AAPL  ) iPhone on Dec. 12 -- the first time the phone has ever been sold on the network. As the world's largest carrier, it's clear the deal is a big opportunity for Apple. But just how big? Let's put the incremental addressable market into perspective.

The world's largest carrier
China Mobile is the world's largest carrier by a long shot. The company boasts 759 million subscribers. China Unicom, the world's most populated country's second-largest carrier, is considerably smaller at 276 million subscribers. China Telecom has 183 million subscribers. Point is, China Mobile isn't just another China Unicom or China Telecom for Apple. It's in a category of its own, with a subscriber base more than twice the population of the U.S. It's massive.

And China Mobile has a very low 3G penetration rate. While peers China Unicom and China Telecom have higher 3G penetration at 42% and 54%, respectively, only 23% of China Mobile's subscribers use 3G. That means 583 million China Mobile subscribers are potential first-time smartphone buyers for Apple.

Sure, the low 3G penetration rate is also likely a representation of a large percentage of subscribers that wouldn't be able to afford the iPhone, as fellow Fool Rick Munarriz points out. But the 583-million-strong market of first-time smartphone buyers also paints a picture of a massive long-term opportunity. Even better, China Mobile's 3G subscriber base is growing rapidly.

And here's another way to look at the opportunity. The higher penetration rates of China Unicom and China Telecom can be viewed as China Mobile's potential 3G saturation in the short term. After all, China Mobile isn't just randomly launching the iPhone on its network. The timing couldn't be better. The deal comes simultaneously with the launch of its Dec. 18 rollout of its 4G network. If peers can achieve penetration rates of 50% on mobile data plans, China Mobile's fast-growing 3G network combined with the launch of its new 4G network should rapidly catapult the company to penetration levels on par with its competitors. Penetration near the levels of its competitors would bring China Mobile close to an additional 200 million subscribers.

Double the size of the U.S. market
But here's my favorite way to add perspective to the deal. Between all four of the major wireless carriers in the U.S., there are about 260 million subscribers, excluding wholesale, MNVO, and connected devices customers. China Mobile, at 759 million, dwarfs even the combined total of subscribers in the U.S.

Obviously, it's going to take some time for China Mobile's 3G and 4G penetration to rival the U.S., but China Mobile is gold mine over the long haul. For long-term Apple investors, China Mobile is like a high-yielding annuity. McKinsey estimates China's urban private consumption will grow from just 10,048 billion yuan in 2012 to 26,804 billion yuan by 2022. That's nearly a threefold increase in urban spending in just 10 years. You can bet this will impact China Mobile's 3G and 4G penetration rates.

The China Mobile deal should provide a rewarding stream of incremental sales for Apple for years to come.

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Comments from our Foolish Readers

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  • Report this Comment On December 10, 2013, at 10:11 AM, financefrau wrote:

    If you're saying CM only has 23% 3G customers, wouldn't there target base then be .23% x759 or 174million customers? Unless I'm reading your article wrong, I think you have the numbers reversed (77% of 759m instead of 23% of 759m)

  • Report this Comment On December 10, 2013, at 10:25 AM, BioBat wrote:

    financefrau, you're looking at it wrong. The target base is anyone who will be buying a smartphone for the first time (ie. the 77% of 750+M users that aren't using 3G yet) as is stated in the article "That means 583 million China Mobile subscribers are potential first-time smartphone buyers for Apple."

  • Report this Comment On December 10, 2013, at 12:20 PM, DargFool wrote:

    Sanity check here:

    China Mobile claims 759 million subscribers

    China Unicom claims 276 million

    China Telecom claims 183 million


    Total subscribers = 1218 million

    China Population estimated at 1344 million (2012)

    Distribution between 15 - 64 est at 986 million.

    So where do the extra subscribers come from?

  • Report this Comment On December 11, 2013, at 7:21 PM, LeoDragon wrote:

    So, the Fool assumes that all China's 2G subscribers who haven't yet bought an iPhone are potential Apple customers, in the long term? Long term, indeed! Most of China Mobile's 3G customers this year have been given free new sub-Rmb1,000 phones (US$150) just to get them off the overly-congested 2G network. You really imagine those same people - never mind the remaining 583mn people who haven't yet been persuaded to take a free phone because their monthly bills might go up by Rmb10 a month - will buy a phone costing Rmb5,000?! This is misleading in the extreme. The short term market for iPhones is the 40 million people who have already bought iPhones and are using them for voice on China Mobile's 2G network and data on WiFi. And that's it. If Apple really wants to tap the 500 million or so people yet to buy a smartphone, it needs to offer the Chinese a phone costing less than US$100!

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