In December, Apple finally struck a deal to sell iPhones on the China Mobile network, the world’s largest carrier. But, according to a report by the Wall Street Journal, the partnership comes at some cost to the carrier, at least in the short term.
The rollout of iPhones on China Mobile will start later this month as part of the carrier’s launch of its faster 4G network.
However, since news of the deal became public, brokerages have been dramatically reducing their earnings forecasts for China Mobile because of steep financial outlays for a new network and anticipated handset subsidies.
From the report:
Credit Suisse analyst Colin McCallum said he has reduced his 2014 net profit forecast by 9.1% and cut his price target for China Mobile by 6% to 94 Hong Kong dollars (US$12) as he incorporated in lower interconnection fees and raised his handset subsidy forecast by 5.3 billion yuan (US$876 million) to 36.8 billion yuan for this year after China Mobile’s agreement with Apple.
Marvin Lo, analyst at Mizuho Securities, estimated that China Mobile’s net profit will drop 10% this year, of which a 7% decline would be attributed to a spike in handset subsidies
The news is not without precedent – China Unicom and China Telecom share prices fell for about six months after announcing iPhone partnership agreements.
China Mobile is expected to report an annual profit decline for 2013, its first since 1999, due in part to its hefty investments in 4G network construction. However, officially supporting the iPhone will no doubt reap rewards in the long term in the country for both China Mobile and Apple.