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Contextualizing Apple's iPhone deal with China Mobile

After years of speculation, Apple this weekend announced that the iPhone will finally be landing on China Mobile beginning on January 17. With more than 760 million subscribers, China Mobile is, by a wide margin, the largest carrier on the planet. Consequently, the deal presents a tremendous opportunity for Apple to increase its annual tally of iPhone sales.

In the wake of Apple and China Mobile's agreement, analyst expectations as to how the deal will affect Apple's bottom line have been all over the map. For instance, the most bullish of Apple analysts anticipate that Apple's newly inked deal may help increase annual iPhone sales by upwards of 30 million-plus units. Still, other analysts feel that any uptick in iPhone sales on China Mobile may be offset by a decrease in iPhone sales worldwide.

While we'll have to take a wait-and-see approach to see how the China Mobile deal ultimately impacts Apple's iPhone business, there are a number of statistics worth considering to help contextualize the deal.

First off, the sheer size of China Mobile's subscriber base is absolutely massive, so much so that it's tough to fully appreciate just how large it truly is. As it stands today, China Mobile sports 763 million subscribers. To put this figure into context, consider this: The world's population, as of July 2013, is estimated to be 7.13 billion individuals. Translation? One out of every 10 people in the entire world is a China Mobile subscriber. Even more jarring, China Mobile has more subscribers than the United States has people. How crazy is that?

To further conceptualize China Mobile's subscriber base, let's turn to Verizon, the largest carrier in the US. As of Verizon's most recent quarter, the company boasts about 119.5 million subscribers, meaning that China Mobile is more than six times larger.

In short, we know that China Mobile has an ungodly number of subscribers and, at first glance, it stands to reason that it's only a matter of time before Apple is selling iPhones to tens of millions of new users.

The reality, as it often tends to be, is much more nuanced.

For one, though China Mobile has hundreds of millions of subscribers, there is a huge income disparity between the wealthy and the poor. On average, the typical Chinese household brings home about US$12,000 a year. That said, the number of China Mobile subscribers who might actually want and be able to afford the iPhone is significantly lower than one might otherwise imagine.

The New York Times writes:

The cost-consciousness of Chinese consumers extends to their choice of mobile networks. Only 176 million China Mobile customers, less than a quarter of the total, subscribe to the company's high-speed wireless data service, using 3G technology.

Apple and China Mobile announced their partnership a few days after China Mobile introduced an upgrade to a newer, faster system - 4G - for parts of its network. The existing 3G subscribers, not the overall customer base, will provide the main target audience for the new phones and services.

A target pool of 176 million users is nothing to sneeze at, but certainly brings the 763 million-subscriber figure back down to earth a bit.

On this point, it's worth taking a look at this simple and informative chart put together by Ben Thompson over at Stratechery.

The takeaway is that if you're starting with a figure as big as 763 million users, even a small percentage yields a significant number of potential customers.

So while the vast majority of China Mobile subscribers won't be carrying around iPhones anytime soon, the opportunity for Apple is still rather sizable.

One final point worth mentioning is that the smartphone market in China is not as subsidy-friendly as it is in the US. As a result, some analysts have wondered how much this dynamic will adversely impact iPhone sales and temper analyst expectations. To this end, China Mobile is reportedly looking to increase the amount it spends on subsidies by 42 percent, from $4.4 billion spent in 2013 to $6.24 billion in 2014.

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