Phoney fashions

Can latest iPhone enable Unicom to catch up?

Phoney fashions

His long wait is over...

If you thought the new iPhone 4 was expensive in London or New York, try buying one in China. Back in July, the handset was going for as much as $2,000 in the country’s flourishing grey market. According to the Oriental Morning Post, most of the phones being sold were UK and US handsets that had been shipped over to Beijing and Shanghai. No wonder the New York Times is now comparing Apple’s gadgets to Louis Vuitton purses as totems of wealth for the status-obsessed.

Finally recognising the potential of China sales, Apple last Saturday released its iPhone 4 in China, three months after its introduction to the US in late June.

By comparison, Apple didn’t start selling the iPhone 3 in China until last October, although it had been released in the US in 2007. Apple’s tablet computer the iPad arrived much more quickly, available in September, less than five months after its debut in the US.

The faster start to iPhone 4 sales is a sign of Apple’s more active approach in China, where the company still has little presence. Apple opened two new stores in Beijing and Shanghai last weekend. Analysts see that as a sign that Apple is now taking its China prospects more seriously. The move has doubled its retail presence in the country, so it can be read either as rapid growth or further evidence of a missed opportunity.

Growth would be great news for China Unicom, the only network operator to offer the iPhone. Already, the telco operator has reported that it is running out of iPhone 4 handsets for sale. The company had received more than 200,000 iPhone 4 pre-orders by last Saturday, the day sales began. That’s a vast improvement on last October, when the company sold 100,000 iPhone handsets over the first six weeks.

Unicom has a lot at stake. It has struggled to keep up with its two competitors in the race to pick up high-end customers. China Mobile, the country’s largest mobile carrier, has been adding new subscribers at 3.5 times the pace. Unicom’s average revenue per user – a key gauge of profitability in the industry – is already the lowest among the three carriers and has continued to slide.

Unicom announced on Tuesday that it had sold $1.84 billion worth of convertible bonds, and analysts say the move highlights the cash-flow pressure the it faces as its 3G business continues to bleed cash. HSBC telecoms analyst Tucker Grinnan called Unicom’s half-year financial results “disappointing”.

The telco operator’s poor results still caught many by surprise. Unlike China Mobile, which uses the somewhat crippling homegrown TD-SCDMA technology, Unicom was given a WCDMA license, which experts say supports much better performance and the most comprehensive range of compatible consumer devices in China. Unicom also has an advantage over China Telecom in the likely volume of 3G conversion, which has the smallest subscriber base of the country’s three operators.

So what has gone wrong? Industry observers blame bureaucratic decision-making process for Unicom’s relatively slow reactions to changing market conditions. Apparently, decisions require multi-layered management approvals.

“In a market-oriented company, projects go from planning to execution measured in terms of days, while at China Unicom, it is measured in terms of weeks,” a company insider told Century Weekly. “What needs to be done gets done, but a low level of efficiency is the biggest problem.”

Another problem lies in the way that the telco’s local subsidiaries guard their own autonomy. Provincial or prefecture-level divisions are reluctant to share resources for the sake of the wider business, even at the urging of head office. In the case of the iPhone 4, that has meant some provinces running out of units for sale, while others refuse to replenish supply from their own stockpiles.

Unicom has also had a tough time working with Apple. For example, the Cupertino-based company, notorious for an unwillingness to compromise, dictated the timing and pricing for the release of the iPhone 3. That price turned out to be higher than many Chinese would accept, and sales came in well below expectations for the first six months.

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