China Mobile and Apple can't agree

If you've wondered why Apple hasn't entered the biggest mobile market in the world yet, the answer has been revealed today by TMT China.

According to their sources, talks between China Mobile and Apple broke down over China Mobile's insistence that Apple allow China Mobile to administer the App Store and its revenues.  The nerve!  It didn't just start there, however.  They've been going at it for years.

The first two rounds of talks broke down over how much China Mobile and its customers would pay for the iPhone:

Wang said China Mobile had undergone three rounds of talks with Apple officials, including Apple CEO Steve Jobs and COO Tim Cook, over an 18-month period, according to the source.

In the first round of negotiations, Apple asked for between 20 percent and 30 percent of China Mobile's revenues from iPhone users, which was rejected by China Mobile, the source said.

In the second round, Apple offered to sell iPhones to China Mobile at $600 per unit and required that China Mobile subsidize iPhone service bundles offered to users. Again, the two parties failed to reach an agreement.

These are very similar to arguements/agreements that other global telecoms have had with Apple.  The big difference is that Apple could play them against their competitors.  Since China mobile controls most of China's mobile handsets, they have a lot more leverage against Apple and handset makers in general.

Interestingly, the latest round of talks failed because China mobile wanted to control the App store and its revenues.  

The third and final round of negotiations also broke down over Apple's insistence that it, rather than China Mobile, sell iPhone applications directly to customers via its online store. Wang saw the offer as a threat to China Mobile's dominance of China's mobile Internet industry, as Apple rather than China Mobile would collect money directly from customers under the deal.

This is a huge deal that many in the phone industry and backend service providers (like Amdocs) are watching closely.  The reason is that Apple isn't the only one with ambitions for an App Store.  Blackberry, Nokia/Symbian, Microsoft and other Mobile OS vendors are also building storefronts where their users will be able to buy services.  Even Amazon is getting into the act with mobile music downloads for devices like the Palm Pre.  These aren't just apps but music, ringtones, videos and video on demand and other things that might be of use to mobile users. 

As of now, the iPhone is the only mainstream device that let's you easily  buy stuff direct from Apple.  China Mobile doesn't want it in its current form to open the floodgates to China's mobile handset market.

The thing is, I don't see how they can avoid this.  The walled garden approach has never worked (ask AOL)  on the Internet.  As long as the device makers are building the phone and the phones can access the Internet, there is little they can do to avoid users getting the content.  The carriers would be best to focus on adding services to the back end.

For instance:

• Instead of Voicemail: The carrier uses their speech recognition to send a text to your phone with text of the voice message and who/number it was from.
• Instead of listening to your phone ring or busy signal, people who call you get your public calendar (next freetime available?), latest GPS data, weather report, last time online, etc.
• When you call someone, it can send you an SMS with the Google Maps coordinates of you and the person you are calling.

These are all backend services areas that carriers could be innovating in.  If history is any indication, they wont.  Carriers don't innovate.  For instance, until Apple made it happen, visual voicemail wasn't a reality even though carriers could have done this relatively easily, years ago. 

So, for now, Chinese mobile users won't get to use the Apple iPhone.  However, at some point in the future,  China Mobile (or one of the smaller Chinese mobile vendors) will allow the iPhone into the mainland.

Until then, Apple will sell the iPhone unlocked in Hong Kong for Chinese users to enjoy.