Apple Can Expand Addressable Market by Selling iPhone through China Telecom

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Apple (NYSE:AAPL) continues to make rapid strides in the Chinese telecom market. Chinese regulators recently approved Apple’s application for a handset that operates on the CDMA2000 network standard, a technology supported by China Telecom. [1] The iPhone is already available on China Unicom‘s (NYSE:CHU) network, which has about 36 million 3G subscribers, and Apple could potentially double its addressable market once it starts offering its flagship phone on China Telecom’s (NYSE:CHA) network that has about 33 million 3G subscribers.

The iPhone is the most valuable business for Apple and accounts for more than 50% of our $500 price estimate for Apple stock. Our price estimate for Apple’s stock is about 20% above market price.

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China a Lucrative Market for Apple

China presents a huge opportunity for Apple. According to the Q3 2011 figures from Strategy Analytics, China leapfrogged the U.S. to be the world’s largest smartphone market by volume. [2] The country has seen its 3G subscriber base almost triple over the past year. Even so, its 3G subscriber base is still only a little more than 12% of the total mobile subscriber base.

Apple’s CEO Tim Cook has acknowledged the immense potential that China presents. In the last earnings call, Cook affirmed that China was Apple’s “fastest growing region” and that the company was doing everything it could to market its brand in the country. [3] By obtaining permission to sell the iPhone on China Telecom’s network, Apple can potentially double its addressable market in China.

China Mobile still Remains the Biggest Prize for Apple

After China Telecom, China Mobile (NYSE:CHL) would be Apple’s next major win.

China Mobile is the single largest wireless carrier in the world, which means Apple would be desperate to sell the iPhone through this company. Although Apple has been in talks with China Mobile for quite some time, a significant bottleneck is the iPhone’s lack of compatibility with China Mobile’s home-grown TD-SCDMA network.

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Notes:
  1. Apple Moves a Step Closer to Offering IPhone to China Telecom Subscribers, Bloomberg citing The China Radio Management Office website as the source, January 10th, 2012 []
  2. China in Smartphone Lead, WSJ, November 24th, 2011 []
  3. Apple’s FY Q4 2011 earnings conference call transcript, SeekingAlpha, October 18th, 2011 []