Apple's (Nasdaq: AAPL) 
bid to sell its iPhone in China has apparently failed with the news that
China Mobile is ending talks to market the device there.
The two firms reportedly ceased negotiations because they were unable to agree upon a revenue-sharing model for the music, games and video downloads that China Mobile would offer. Apple was requesting up to 30 percent of user fees from iPhone users in China, for instance, according to Chinese Internet portal Sina.com.
However, some reports suggest that Apple and China Mobile are not finished talking, and may be planning to meet again in an effort to bridge the gap in their expectations over revenues and fees.
Critical Foothold
Apple's stock fell about 3 percent to US$172.69 on Monday, after news of the failed talks leaked out. Establishing a foothold in China, as well as in other emerging markets, is seen as key for Apple to broaden exposure -- and sales -- of its iconic but costly mobile device.
Global use of mobile handsets far surpasses the U.S. market, despite Americans' love affair with gadgets -- particularly the iPod. In China alone, where most of the affluent own more than one device, there are some 539.4 million wireless phone users, according to government data.
Apple is operating under a ticking clock in the China market, with both local and foreign competitors eager to tap into the same customer base. Research In Motion's (Nasdaq: RIMM) BlackBerry, marketed by China Mobile, is already making headway there.
"This is not good news for Apple," Charles King, principal with Pund-IT told MacNewsWorld.
"The company has done relatively well with the iPhone in the United States," he observed, "but the kind of success Apple really needs to create is in the global markets."
Marginal Player
Apple's problem is that -- despite its high profile -- it is still a marginal player both in the United States and internationally, King explained.
The iPhone's traction in the United States remains limited by the price point -- still fairly high, despite the drop from $599 to $399 for the 8 GB model.
"The problem with the iPhone has been the same from the beginning," King said. "It is priced to appeal to high-end customers; but by taking this approach, it risks becoming a niche player."
The company needs a huge partner like China Mobile to gain a foothold in foreign markets. A strong emerging markets play could counterbalance the iPhone's limited market appeal in the United States, he concluded.
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