IPhone's calling, but China isn't answering

David Pierson / Los Angeles Times

Beijing -- Apple Inc.'s iPhone has been a ringing success wherever it has been launched. But in China few are picking up the buzz.

Challenged by high pricing, missing features and stiff competition, only 5,000 iPhones have been sold since the handset debuted Oct. 30 in the world's biggest cell phone market. By comparison, more than 1 million units were sold in the first three days when the latest iPhone was launched in North America and Europe in June.

One major hang-up might be the price. China Unicom, the state-owned mobile carrier and the exclusive partner for Apple, has been selling the phones for between $880 and $1,170 with a service plan. The devices sold in China also don't feature Wi-Fi. U.S. devices have Internet capability and sell for between $199 and $299 with a two-year service plan.

"They're not exactly flying off the shelves," said Duncan Clark, chairman of research company BDA China Ltd. "The consumer will quickly figure out it doesn't have Wi-Fi. ... At the end of the day, it won't be a winning strategy."

With 700 million cell phone users and growing, China represents the largest battleground for mobile phone makers and software developers. Apple faces stiff competition from technology rivals Google Inc., Microsoft Corp. and BlackBerry's Research in Motion for market share. Finland's Nokia sells the most mobile phones in China.

Although iPhone sales so far have failed to meet analysts' modest expectations, China Unicom officials said they were unfazed by the initial numbers, telling reporters in Hong Kong recently that the device was priced appropriately for a two-year service contract.

"We are satisfied with iPhone sales so far," said China Unicom Chairman Chang Xiaobing.

Apple declined to comment.

The launch contrasted greatly with those in the U.S., where iPhone unveilings have been received by throngs of eager buyers waiting overnight outside stores. One million of the latest iPhone 3G S models were sold only three days after the model went on sale in June. Apple, based in Cupertino, Calif., beat Wall Street's expectations last month by reporting a 47 percent surge in profits in the fiscal fourth quarter largely on the backs of its popular Macbook notebook computers and iPhones.

In China, the iPhone was introduced to a more reserved crowd on a cold, damp evening at a Beijing shopping mall known for its sprawling outdoor television screen.

Analysts said the device was too expensive in a country with growing, less-expensive options for smart phones, computerlike handsets that also feature Web browsing and e-mail.

The iPhone will appeal most to the urban elite and people who value the status of carrying the trendy device, they said.

But many people who fit that mold have been buying gray-market iPhones -- versions that have been smuggled into China from abroad and reprogrammed to work with Chinese networks. There are estimated to be as many as 2 million gray-market iPhones in China.

Clark of BDA China said there are anecdotal reports that the release of the iPhone at such high prices has driven the price of gray-market iPhones higher by $20 to $30 to about $500.

He said the disappointing initial sales of the phone also were due to the lack of a Wi-Fi feature on China Unicom's iPhone -- a standard function for all other iPhones, including gray-market models.

Chinese regulators previously had banned Wi-Fi in order to promote a domestic version of the same technology. They have since reversed the ban, but China Unicom still procured iPhones with the function disabled. The feature may be installed on future models.