The Short Names

Apple (NSDQ: AAPL) has long wanted to sell the iPhone in China, and today, after much negotiation, the device finally goes on sale with China Unicom. But in a country that gave the world the knockoff Hi-Phone and where gray market iPhones have done a brisk trade, will Chinese consumers snap up the real deal?

As the WSJ.com points out the one huge sticking point is price. The 32 GB iPhone 3GS is being offered contract-free—the typical way people buy phones in China—for a whopping 6,999 yuan ($1,024). The 8 GB iPhone 3G, the cheapest alternative, is selling for 4,999 yuan ($732), while the 16 GB 3GS will sell for 5,880 yuan ($861). IDC says the average smartphone price in China is $350.

What’s more, Apple had to strip out Wi-Fi functionality from the phones to comply with a Chinese regulation banning the technology. The ban has since been lifted, but not before Chinese iPhones went into production. Gray market phones sell anywhere between 32 percent to 59 percent less than the iPhone and include Wi-Fi, according to Cynthia Meng, an analyst at Bank of America Merrill Lynch.

Pricing, though, gets more complicated when you throw in China Unicom’s subsidy. To get the subsidy, users have to commit to one of the 8 levels of 3G service packages on offer, which cost between 126 yuan ($18) to 886 yuan ($130) a month. The higher the service plan, the larger the subsidy. Over the course of 24 months, the iPhone could work out 10-27 percent cheaper than their gray market counterparts on the same China Unicom plans—but that all depends on if a consumer is willing to look at the cost of the device over a 2-year period, and how much they value Wi-Fi. 

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