In China, iPhone Is Put on Hold

I didn't hear the ringside bell, but Round 1 of negotiations between Apple (Nasdaq: AAPL) and China Mobile (NYSE: CHL) to offer the iPhone in China have apparently reached an end. While talks have been under way since late last year, a representative from China Mobile has confirmed that "negotiations have ended for now."

It's not surprising that talks haven't gone fast and smooth. Many carriers around the world have bristled at the terms Apple requires for offering the device. And China is not an easy market to break into -- it took Qualcomm (Nasdaq: QCOM) nearly a decade to win adoption of its technology after much haggling. Granted, adapting one phone is not as complex as pitching a whole new wireless network platform, but Chinese companies resist giving control to outside companies unless it's clearly to their advantage.

And I imagine it's tough to convince a company already signing up 5 million to 6 million customers a month that it absolutely needs the iPhone. In the U.S., the hypercompetitive environment worked to Steve Jobs' advantage because AT&T (NYSE: T), just after the BellSouth merger, was keenly interested in being the clear leader in wireless when it struck a deal with Apple.

With discussions on ice about a deal in China, many are wondering if Apple will be able to reach sales goals for the iPhone for 2008. Many see China's No. 2 wireless carrier, China Unicom (NYSE: CHU), as a much less attractive partner for Apple, with a subscriber base only one-third the size of China Mobile's.

But Unicom's 120 million subscribers is nothing to sneeze at, and while the bulk of consumers likely can't afford an iPhone, I'm guessing a surprising number will find the money to carry the trendy device. (The high-end market in China will be tested soon when Research In Motion (Nasdaq: RIMM) launches the BlackBerry there with China Mobile, although the exact launch date is still not set.)

Being runner-up, China Unicom might be more willing to accept revenue-sharing terms Apple is demanding. Even though Jobs commented that 4 million iPhones have been sold so far, expectations are still high for Apple, which might lead the company to other partners who are willing to speed the introduction along.

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