More Battles Ahead for IPhone in China

[ama:iPhones,1,new]

Apple has emerged from winding negotiations with an iPhone deal in China, but the handset will still face government pitfalls and look-alike competitors in the country.

Local carrier China Unicom said Friday it had reached a three-year iPhone distribution deal with Apple, ending months of rumor about an impending agreement. The carrier will offer the iPhone 3G and iPhone 3GS, with the first handsets going on sale in the fourth quarter.

The deal launches Apple into a huge market where its products already have a following among fashion-conscious urbanites. China has nearly 700 million mobile subscribers, and 141 million of them used China Unicom’s service at the end of July.

Marvin Lo, an analyst at Daiwa Securities, expects about 2 million iPhones sales in China each year through the China Unicom tie-up, not far above the number sold in other countries, he said. Apple currently sells about 30 million iPhones per year worldwide, he said.

China is a big market, but the iPhone faces competition in the country from copycat handsets and from iPhones imported on the gray market, Lo said.

Another mark against the Chinese iPhone is that it will not have Wi-Fi, a function China banned on mobile phones until this year and now allows only on handsets that support a domestic security specification for wireless LANs (local area networks).