iPhone deal put on hold in China

Apple and China Mobile both want a larger share of iPhone revenue than the other is prepared to give

Plans to introduce the iPhone to China have been derailed by a breakdown in negotiations, local press reports say.

Apple and China Mobile, the country's largest mobile operator, both want a larger share of revenue than the other is prepared to give, according to reports on Sina.com.

Apple had been discussing a Chinese debut for the iPhone with China Mobile for several months, and had demanded 20 to 30 per cent of revenue earned from iPhone subscribers.

However, Gao NianShu, general manager of China Mobile's mobile data division, insisted that this was not acceptable.

"We definitely do not agree," he said. "It is not that we want to control the value chain, but that we think the value chain should be jointly established and developed."

Although this is the second time that negotiations between the two companies have broken down, Gao insisted that China Mobile is prepared to reopen negotiations if Apple is willing.

Gao also criticised the iPhone's mobile messaging functions, which he said are much weaker than its internet capabilities. He described this deficit as typical of an IT company entering the communications market.

The easy availability of expensive grey-market iPhones in China's larger cities suggests that there is considerable demand for the product.

Government-linked China Mobile dominates the country's mobile market with almost 370 million subscribers.

Tight government control of mobile operator licences means that China Mobile has only a single, much smaller competitor, China Unicom, which has approximately 120 million subscribers.

The government is expected to grant mobile network licences to two additio nal operators when it belatedly allows 3G services to begin operating later this year.

A Hong Kong-based spokeswoman for China Mobile confirmed to Bloomberg News that the two companies were no longer talking, but did not give any additional information.