(Updates with China Mobile comment in sixth paragraph.)
Dec. 5 (Bloomberg) -- China Mobile Ltd. won state approval to start commercial service on the world’s largest fourth- generation wireless network, clearing a key hurdle to offering Apple Inc.’s iPhone to its 759 million subscribers.
The world’s biggest phone company and two smaller domestic carriers received 4G licenses yesterday from China’s Ministry of Industry and Information Technology. China Mobile will deploy TD-LTE technology to promote faster downloads as it tries to push customers toward higher-priced voice and data plans. Shares rose to the highest in six weeks.
Starting services on a 4G network using global standards may help China Mobile win over handset makers, including Apple, that hadn’t supported its homegrown 3G standard. The high-speed network was scheduled to reach 100 cities covering 500 million people this year, potentially weighing on the company’s earnings for years as it tries to lure users with enticements such as subsidies for new devices.
“With the expense of setting up the 4G network, there is going to be pressure to load the network and encourage customers to migrate faster than they normally would,” Tucker Grinnan, a Hong Kong-based analyst with HSBC Holdings Plc., said by phone. “The start of 4G service will mean more pressure on profits.”
China Mobile signed a deal with Apple to start offering the iPhone later this month, the Wall Street Journal reported, citing a person it didn’t identify.
“China Mobile and Apple have continuously been engaged in talks on cooperation and currently there is no information that can be disclosed,” Rainie Lei, a Hong Kong-based spokeswoman for China Mobile, said in an e-mail today. Carolyn Wu, a Beijing-based spokeswoman for Apple, declined to comment.
Shares of China Mobile rose 0.8 percent to HK$84.90 at the midday trading break in Hong Kong, paring this year’s decline to 5.9 percent.
Apple is close to agreeing to a distribution deal with China Mobile, a person with knowledge of the matter said in September. The carrier said in 2011 that Apple agreed to make an iPhone for its customers once it shifted to 4G.
Apple Chief Executive Officer Tim Cook traveled to Beijing at least twice this year as the carrier said it was discussing possible cooperation with the Cupertino, California-based company.
As of Aug. 30, China’s Telecommunications Equipment and Certification Center had approved for service an Apple handset that could run on a 4G TD-LTE network in addition to China Mobile’s 3G network, according to a statement on the regulator’s website.
China Mobile will promote the construction and full operation of the LTE network along with its state-owned parent, Lei said. She declined to say when services would start.
The carrier in August said it spent 14.2 billion yuan ($2.33 billion) on subsidies in the first half of this year to attract users to its 3G network. Only about a third of the nation’s 1.22 billion wireless subscribers have 3G plans.
“In the long term, it is important for China Mobile to improve its cost structure by migrating users to 4G,” Huang Leping, an analyst at Nomura Holdings Inc., said in an e-mail. “The Apple deal should help China Mobile to retain its high average revenue users.”
The absence of popular handsets like the iPhone limited China Mobile’s ability to compete with smaller China Unicom (Hong Kong) Ltd. and China Telecom Corp. in winning users seeking high-speed connectivity. China Mobile has 759 million wireless users, more than the population of any other country except India, yet it had only 45 percent of the nation’s 3G users as of Oct. 31.
China Unicom and China Telecom both carry the iPhone. The two carriers also received 4G licenses, China’s MIIT said in a statement on its website yesterday. The government didn’t say when services using the TD-LTE standard will begin.
Jacky Yung, a spokesman for China Telecom, said the company plans to start LTE service in the first quarter.
The 4G commercial service will follow three years of technology trials dating from December 2010. China Mobile said Aug. 15 it has 15 handset models ready for use on its 4G network, with more than 100 devices in development.
“China Mobile has already developed an extensive network of 4G base stations across China, so with the launch of 4G service they can aggressively capture the 4G demand,” Ricky Lai, a Hong Kong-based analyst at Guotai Junan International Holdings Ltd., said by phone. “China Mobile would like to poach high-end subscribers through new offerings like the iPhone.”
China Mobile needs to convince users like Pu Yaoyao, a 21- year-old from Fujian province in southeast China, that it’s worthwhile to upgrade. She said a 4G plan will cost her 188 yuan a month, compared with the 150 yuan she currently spends.
“I won’t be switching to 4G because I can barely afford what I have,” Pu said outside a China Mobile outlet in Beijing.
It’s not just the monthly costs, it’s also the up-front investment in a handset that worries Pu. She uses an Oppo U701T brand smartphone that was free with her 3G plan.
Switching to 4G would require a new phone, and the only way to get a free device is with a minimum two-year service contract.
China Mobile’s initial trial in Beijing only offered three other handsets by Samsung Electronics Co., Sony Corp. and China Wireless Technologies Ltd., with prices starting at 2,999 yuan.
China Mobile said in March the rollout of 4G would contribute to a 49 percent increase in capital spending to 190.2 billion yuan this year. Spending on the 4G network accounted for 52 percent of the total, or about 99 billion yuan, the carrier said.
As a result, the company this year is projected to report its first decline in annual profit since 1999. China Mobile net income this year will probably fall 2 percent to 126.3 billion yuan, according to the average of 22 analysts’ estimates compiled by Bloomberg.
--Edmond Lococo. Editors: Robert Fenner, Michael Tighe