Ms Zhou had of course heard the news that the Apple iPhone would, at long last, be launched in mainland China.  But she didn’t appear to be overly excited at the prospect. “I already have one of those,” she told me, “The eight GB version”. She and a million or more other purchasers of iPhones in mainland China bought their phone in the full knowledge that the people selling it were not able to provide a manufacturer’s warranty or any kind of official receipt. 

  If it had broken down the next day, Ms Zhou would have had to have relied on the word of the man she had bought it from – one of the many unofficial iPhone sellers in Zhongguancun, Beijing’s biggest electronics marketplace – that he would replace it.  The seller, let’s call him Mr Ping, had actually promised her a three-month warranty; and, as well as appearing trustworthy, he had offered the most competitive price (of the ten people selling iPhones within a few yards of each other), and had also thrown in a couple of “free” applications. 

  So, satisfied she had got the best deal possible, Ms Zhou had handed over her hard-earned 4,500 yuan, and hoped for the best. 

  Why trust Mr Ping?  Well, the iPhone is much more than a phone of course.  For a high percentage of the million or more owners of a shuihuo (smuggled) iPhone in China, it’s an important fashion statement.  Thanks to the power of the Apple brand, they are willing to take the gamble of trusting the Mr Pings of this world.    

  Apple, whose global business model for iPhone relies on revenue-sharing schemes with approved operators, has taken the trouble of installing locking software that is designed to stop the phones being sold on the free-market (theoretically, the device only works with SIM cards from operators who sign a revenue-sharing agreement).  However, this is China and consumer demand tends to be satisfied one way or another.  So, the entrepreneurs in the supply chain have worked out a way of ensuring that all of the smuggled phones here can accept whatever SIM card the buyer may already have. 

  The reality is that the vast majority of iPhone users (perhaps as many as 90 per cent of them) are using a SIM card from China Mobile, the world’s biggest mobile phone operator. 

  It’s not surprising, then, that China Mobile didn’t welcome Apple’s revenue-sharing proposition with open arms.  Reportedly, they walked away from the deal because Apple wanted significantly more of the revenue than the Chinese operator was willing to concede.

  Let’s do the sums:  China Mobile has been receiving… let’s see… yes… 100 per cent of the revenue from a million or more iPhone users…. so…

  Okay, I’ve conveniently sidestepped the point that a significant increase in sales of the official iPhone is likely to push up the average spend per (premier league) user; but nevertheless I think it’s fair to say that Apple’s negotiating position has been undermined to say the least. 

  From Apple’s perspective, the silver lining in this particular cloud was painted by the Chinese government, who decided that China Mobile would be given the Herculean task of turning TD-SCDMA (“TD”) – China’s home-grown 3G platform – into a success story; and that the much-smaller China Unicom would be given the tried and tested global 3G technology to play with – the very same platform that the iPhone has been designed to run on (it would take a significant and expensive hardware redesign for iPhone to work on TD, the home-grown China platform).

  The awarding of TD to Goliath and the global platform to David is a very innovative way of levelling the competitive playing field to be sure.  It also ensures that the politically important “TD” is given the best possible chance to succeed.  (Talking of levelling the playing field and innovative solutions, it’s perhaps worth mentioning that – a few years ago – the government decided to job-swap the CEOs of the two companies in an effort to make Unicom more competitive.)

  There’s no doubt that TD’s success, when it happens, will be held out to be another shining example of national achievement in the field of science.

  With so much national pride riding on the platform (and also mindful of the recently announced 42 per cent fall in half-year profits) it’s not surprising that Unicom has been keen to conclude the deal with Apple.

  Well, you can stop holding your breath, because according to numerous reports a “three year” deal has finally been struck.  Beyond that, it’s all a bit hazy – as you would expect from Apple, which rarely talks about its product or business plans and from where little, if anything, leaks. 

  Apple's code of silence is such that details are likely to stay hazy even after the official China launch, whenever that may be.

  The only thing I do know for sure is that, as well as thinking about how many iPhones they will sell in China in Q4 of this year or in full-year 2010, they should be sparing more than a thought for Ms Zhou and the numerous other highly-influential first-wave purchasers whose relationship with the Apple brand has been strained:  

  Ms Zhou took a deep breath before summing up her frustrations:  She has not been able to use MSN, because she couldn’t easily download the application (this has to be bought from Apple’s application store in the US she told me); she has not been able to use QQ, China’s most popular instant messaging platform, because there isn’t an application available; she has grown tired of having to use her computer to transfer music from her iTunes library; she can’t transfer her contacts’ details from her old Nokia; and she can’t even use the ringtones she wants to.  In summary: the phone has worked fine; but the glow of being seen to be a fashion leader was soon blanketed by a mist of frustration.

  Now, I am sure there are a few techies who will read this while shaking their heads and shouting out the names of the various software solutions that would solve Ms Zhou’s problems.  But the point is that the vast majority of people who are using the iPhone in China really have no interest in spending hours on researching and implementing “ways around” the various Apple-installed roadblocks that presently exist. For the vast majority, therefore, it’s all a “too much trouble”, so they either resign themselves to the inconvenience or do what Ms Zhou did – she put the iPhone in the draw and went out to buy a Nokia. 

  She still uses the iPhone occasionally though.  “It’s got a great camera,” she says, “I sometimes use it to take photos.” 

  Another disillusioned iPhone user, Ms Yang, puts it like this: “Everything is free in China, except if you use an iPhone; then you even have to pay for ring tones.”