Nokia exploited Apple‘s Achilles’ heel of subsidies to beat Apple inChina.

China Mobile Limited (CHL) is the largest cellular provider in the world by number of subscribers.  At the end of October it had 703 million subscribers including 79.3 million 3G users.

China Mobile has been in desperate need for a flagship high end smart phone.  Apple has been negotiating with China Mobile to make iPhone its flagship phone.  Apple bulls have been counting on the big subscriber base of China Mobile to fuel further iPhone growth in China.

In a surprise move, China Mobile chose Lumia 920T, a phone based on Microsoft (MSFT) Windows Phone 8 over iPhone 5.

The biggest fall in four years in Apple stock on December 5th was attributed by some experts to Nokia’s win in China.

Apple’s Achilles’ heel is that it demands larger subsidies from carriers compared to its competition.

The big carriers provide a higher amount of subsidies on iPhones than on Android devices.  An iPhone that costs the consumer $199 may cost a carrier $500 to $700 even though they may be buying millions of these devices.  The carriers more than make up for the upfront subsidies over the life of the contract due to huge margins on data plans.

Major carriers have already conceded that the money is not in voice but in data. Similar subsidies are offered by carriers in most developed markets.

Imagine what will happen if subsidies go away and consumers have to pay $700 to $1000 for an iPhone. My own research at The Arora Report shows that in such a scenario, Apple may easily lose over 50% of its sales of iPhones…Read more at Forbes

 

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