Update May 5, 2010 > Read Here. Update – March 8, 2010: There were several reasons why WiFi on mobile calling devices (phones) was initially banned in China, and it’s also fairly clear why a compromise has been reached (April 2009 – China’s MIIT authorized a WAPI/WiFi stack), although it’s not definitive that Apple will go along with the compromise.

Carriers have been petrified over the proliferation of voice-over-Internet protocol (VoIP) applications now finding their way on to smartphones. WiFi + VoIP could eventually allow consumers to make their phone calls away from the carriers’ cellular networks. As VoIP calling grows, so too does carriers’ greatest fear … becoming “dumb pipes” – just antiquated (“dumb”) cellular transmission networks (“pipes”) that consumers no longer use.

Another reason for the WiFi ban was China’s support for their competing standard – Wireless LAN authentication and privacy infrastructure (WAPI). Naturally China would prefer that consumers utilize the “indigenously innovated” (China built) WAPI versus WiFi (802.11).

Why did China authorize the WAPI/WiFi stack? Prior to April of 2009, only WAPI was allowed on mobile phones. Yet there are not nearly as many WAPI hotspots in China as there are WiFi hotspots (in theory WiFi is just for computer usage). Moreover, there were very few mobile phones being manufactured in China with WAPI capability. This led to a serious problem for Chinese authorities. Consumers were voting with their pocketbooks and buying up millions of grey-market smartphones (including iPhones) with WiFi. Naturally these phones were accessing the tens of thousands of WiFi hotspots across China. Very cool for consumers, particularly since there are virtually no unlimited data plans in China and consumers, who’ve used up their monthly data-surfing allocation, would often switch away from the carriers’ networks in favor of WiFi. So … unless China instituted a massive crackdown on the illicit sales of grey-market handsets (not likely to happen), the proliferation of WiFi-enabled smartphones would continue and “WAPI only” phone sales would suffer. The only way to stem the tide of illicit sales of “WiFi only” handsets was to come up with a King Solomon’s compromise … allow both WAPI and WiFi to be stacked together on smartphones. This solves multiple problems … it allows China to obtain their WAPI royalties (declare victory) and gives consumers what they want, official WiFi-enabled smartphones that can connect to ubiquitous WiFi hotspots or WAPI as coverage (hotspots) expands.

Update – April 24, 2009: via  INTERFAX-CHINA Beijing. April 24, 2009: The Ministry of Industry and Information Technology (MIIT) has allowed mobile phone manufacturers to integrate China’s homegrown WAPI (WLAN Authentication and Privacy Infrastructure) standard into their handsets, a source at a domestic handset manufacturer told Interfax on April 22, 2009.

The source, who asked to not be identified, said that MIIT told a number of handset manufacturers on April 17 that both 2G and 3G handsets are now allowed to have integrated WAPI technology to allow users to access wireless broadband. Read details > HERE

WiFi on iPhone in China? Maybe

Will an official iPhone in China come with WiFi? If the Ministry of Industry and Information Technology (MIIT) bends to the will of consumers and China Unicom, then we may get our wish. But alas, don’t underestimate China’s tendency to make non-economic (political) decisions that stifle progress in the interest of maintaining control (“we’re watching you”) and promoting “ingeniously innovated” technologies.

Minister of Industry and Information Technology Li Yizhong

Is there a chance for Wifi? Yes, but in the near-term (2009) it’s less than 50/50 odds. I’d place the Vegas line at 70/30 against. But hey, 30% is still a chance. There are many who might say that 30% odds for an iPhone with WiFi is optimistic. But China’s Ministry of Industry and Information Technology (MIIT) gave us reason to be hopeful. On March 18, 2009 Marbridge Consulting reported that:

“A source close to the Ministry of Industry and Information Technology (MIIT) says the ban on Wi-Fi enabled mobile handsets might be lifted shortly, with the condition that such handsets were also compatible with the Chinese-developed WAPI wireless networking standard.”

One important side note: For many years now, China ministry officials told wireless consumers that WiFi would NOT be allowed on mobile phones. The rationale for this prohibition was the fear that consumers might be tempted to illegally load VoIP apps and make calls over the Net (Skype, et. al.). China felt this would undermine carriers’ interests.

What was the result of this “no WiFi for handsets” policy? A flourishing black market in WiFi enabled mobile phones, including iPhone. There is also a major jail breaking business in China. Entrepreneurs will sell you a WiFi Smartphone and load it with a VoIP app that allows you to bypass the carrier’s network.

The genie is now out of the bottle. China’s MIIT is not blind to this thriving black market in Wifi handsets. Telecom insiders in China have estimated that a full 50% of mobile phones sold in China are traded through these black or grey market channels. How do you stop this? Make WiFi on mobile handsets legal albeit the handset may have to comply with China’s WAPI.

Let’s hope the MIIT makes the right call and approves WiFi enabled handsets. The consumers will be the winners and new e-commerce opportunities will arise. WiFi will also attract new mobile subscribers and will raise carriers’ average revenues per user (ARPU). That’s called a “win, win, win” – for consumers, for carriers, and for China.

Here’s the full backstory for those who care:

In 2003, the Chinese government released its proprietary security encryption standard for WiFi, known as WAPI (Wireless LAN Authentication and Privacy Infrastructure). China’s ministries then said that any foreign company that wanted to sell Wi-Fi gear in China would have to include WAPI in their products. Naturally, in order to include WAPI in products (e.g. laptops and base stations), foreign manufacturers would have to license the technology though agreements with specially designated Chinese vendors (there were initially 24 such approved vendors).

Many nations, including the USA, objected strongly to the WAPI standard, and in 2004 the Chinese temporarily relented and backed off on the mandate. But the Chinese would not give up easily. Chinese engineers and government officials wanted to see their own WAPI standard adopted as the official International Organization for Standardization (ISO) successor to WiFi encryption. The Chinese pushed hard for WAPI, but in 2006 the Geneva based ISO voted in favor of a rival technology – 802.11i. WAPI was supported by just 32 percent of ISO members. In the same 2006 voting session, 802.11i was backed by 89 percent of those who voted.

What was the key reason for WAPI’s rejection? Concerns over WAPI secrecy, namely the use of an undisclosed algorithm in the WAPI protocol. This set off rumors (no physical firmware knowledge) and charges that WAPI may have “backdoors” that allow China’s Great Firewall (60,000 employees who monitor the Net) to snoop on WiFi users. To this day, China refuses to allow a full inspection of the WAPI standard.

http://www.dailywireless.org/2004/01/30/chinese-security-boycott/

“I have assumed all along, and see no reason to doubt, that the WAPI standard contains backdoor technology that will allow China to monitor any communications sent over ‘secure’ links. Given the propensity for Chinese government monitoring of general Internet activity specifically, and warnings from security firms about purchasing technology designed in China that could contain embedded corporate espionage tools, this isn’t so much speculation as a high probability.”

Still more background:

Excerpt from Telecommunications Industry Association (TIA) December 12, 2008 letter to the Executive Secretary, US Trade Policy Staff Committee:

Issue 4: Technical Barrier to Trade – Wireless Authentication and Privacy Infrastructure (WAPI).

Impact: TIA understands that MIIT plans to issue a regulation allowing handset manufacturers to seek type approval for WiFi-enabled handsets. However, TIA also understands that the MIIT regulation would require handset manufactures to use WAPI and allow them to use WPA2. It is unclear why MIIT would require WAPI when an international standard exists for WiFi (WPA2, which is used internationally as the encryption method in IEEE 802.11i).

Recommendation: TIA seeks to understand what the regulatory justification is for requiring WAPI to be used in order for manufacturers to get type approval for WiFi- enabled handsets. Further, TIA would urge USTR to remind the Chinese government of its 2004 JCCT commitment not to mandate WAPI, and would ask that USTR press MIIT to remove WAPI as a condition of getting type approval for WiFi-enabled handsets in China.

* * * *

See also the following excerpts from a United States Information Technology Office (USITO) report on WiFi and WAPI (Apple and many other tech/telecom companies are members of USITO)…

USITO Special Report: China’s WiFi-based “WirelessCity” project kicks off

December 26, 2008

Recently the Chinese government has been sending mixed signals with regards to Wi-Fi. The industry regulator, MII has long harbored hostility toward U.S.-owned technology, especially Wi-Fi. For instance, it reiterated last year that mobile phones with Wi-Fi enabled-functions are prohibited to sell in China, with no sign that China will change its policy in the future. On the other hand, Wi-Fi technology is growingly popular within the Chinese IT industry: more domestic computer vendors have begun to adopt Wi-Fi, almost 100% of laptops made by domestic companies such as, Lenovo, Haier or Hasee, exclusively use Wi-Fi technology. Most importantly, governments at local levels, out of MII’s jurisdiction, are deploying Wi-Fi at an unprecedented large scale – as we read from last week’s news reports in China’s technology media.

According to the 1/17/2008 headline story in tech.sina.com.cn, the launching ceremony of the “Shanghai Jiading Wireless City” program, China’s first WirelessCity project, was held in Shanghai on December 28, 2007. Shortly afterwards, the local government signed a number of deals with the vendors for relevant Wi-Fi equipment. This signifies the official kick-off of the “Shanghai Wireless City” project. An official press release stated that CECT-Chinacomm Communication Co. will be responsible for implementing the program, and the first phase of the project will build 200-300 Wi-Fi base stations. Members click here for the full text

Special Report: Extensive Wi-Fi Deployment by Chinese Carriers

On March 10, 2008, official sources from China Telecom, China’s largest fixed-line carrier, stated the company will accelerate its Wi-Fi deployment, and roll out large-scale wireless networks in Southern China’s 21 provinces.

China Telecom’s statement said the deployment of the Wi-Fi network will enhance customer loyalty to China Telecom and boost the competitiveness of its mobile service. The company’s 21 provincial subsidiary carriers will focus on building and optimizing their Wi-Fi networks in 2008, in an effort to secure its earnings amid the sharp revenue decline in the landline businesses.

While the telecom carriers are extending their Wi-Fi deployment, China’s WAPI (Wireless Authentication and Privacy Infrastructure) camp made another round of proposals to top Chinese authorities during the National People’s Congress (NPC) meetings, which are still taking place in Beijing. A representative from the Xi’an Electronics University (Xidian), the initiator and patent holder of WAPI, submitted a proposal to NPC asking for reinforced government measures to promote mandatory WAPI products in government agencies and state-owned enterprises. The proposal said that China’s domestic market is currently dominated by foreign wireless LAN products, and that reliance on them is harmful to national security. The WAPI standard should at least be used in the country’s important industries, such as energy, transportation, finance, aerospace and pharmaceutical sectors. Xinhuanet.com, 3/14/2008

USITO Notes: Chinese telecom carriers prefer Wi-Fi to WAPI, although the WAPI camp keeps lobbying the government and industry to promote their products. Currently, most laptops in China support Wi-Fi; it is very rare to find any laptops with a wireless LAN function supporting WAPI. At the city level, governments are making efforts to improve their communications infrastructure by building Wi-Fi networks, like Shanghai and Beijing.

As covered in recent USITO weekly newsletters, Shanghai Municipal Government has announced plans to establish a citywide wireless broadband network adopting Wi-Fi by 2010. The city will build trial networks in several districts this year and will explore a new business model for the wireless city. On March 5, Shanghai Telecom and the Shanghai Municipal Informatization Commission signed agreements for the construction of the wireless network, which will allow anyone to access broadband at anytime from anywhere in the city. At present, people can access Wi-Fi networks in Jiading District of Shanghai. In Beijing, Wi-Fi-based wireless networks are now available in most Olympic facilities and popular scenic spots. Wi-Fi hotspots are also widespread in the city’s business areas, transportation stations, hotels and restaurants.

However, WAPI still has its advantages, especially considering China’s growing national concern for information security. This issue has oftentimes been raised by the WAPI camp, though strictly speaking it remains a question whether WAPI could sufficiently prove its security feature. For the time being, the security issue has been a significant disadvantage of WLAN compared with traditional landline networks, and in China there was once widespread doubt over Wi-Fi‘s security capability.

No feedback to the Xidian proposal is yet available from the NPC authorities, but Chinese industry experts widely hold the view that the submitted proposal will once again receive no support, just as it failed to do in several submissions in recent years. USITO will continue to track the issue, and interested members should contact us for more details.

MIIT to Allow WiFi Phones?

Last week Chinese technology media widely quoted an MIIT official saying that “mobile phones with WiFi functions will soon be allowed to debut on the Chinese mainland as early as late this year“. The quoted official was said to be Xiao Li, duputy chief with the Telecommunications Metrology Center under MIIT.

According to Xiao li, the WiFi-enabled mobile phones will be approved for sale by competent Chinese authorities at the end of this year or the beginning of next year. He estimated that the output of WiFi phones is set to hit 200 million to 300 million units in 2009 in China, half of which will be exported. But Mr. Xiao added that allowing WiFi-enabled phones doesn’t mean allowing Internet phone services such as VoIP, which was regarded as a major threat to the traditional voice-call telecom carriers.

WiFi phones have been restricted for several years in China’s domestic market. All handsets sold in the legal mobile phone channels are banned from carrying built-in WiFi chips although the feature has been widely available in most cell phones across the world. Shanghai Daily , 10/14/2008

USITO Notes: Despite this exciting report, we doubt the whole thing is at rumor base, and are yet to see any positive signs of having wifi phones available in Chinese official channels in the near term. First of all, we saw that Xiao Li is in strict sense not an MIIT official; his lab is a profit-making enterprise affiliated to the MIIT, with primary mandate being profitable (though not officially stated). From his own perspective, he would like to encourage the government loosen the control on WiFi phones, as this would mean better business opportunities. His lab, the Telecommunications Metrology Center, is China’s first agency authorized (in 2005) to conduct WiFi test and certification services. Now China has the second such lab, the Shanghai Tongxin Communications Technology Co., Ltd, authorized on October 13, 2008 to conduct similar certification services following Xiao Li’s lab.

The government repeatedly told the subscribers that WiFi mobile phones can’t be allowed as it would violate carriers’ interests when WiFi is “illegally” used for VoIP services and the like. However, the interests of Chinese mobile phone subscribers are rarely addressed. The scenario helps China’s “black market” grow rampant, as experts believe half (50%) of mobile phones sold in China are traded through illegal channels at the current stage.

Other than the frustrating mobile phone sector, WiFi has been largely adopted in China’s cities. In late 2007 Shanghai government kicked off the “Shanghai Jiading Wireless City” program, China ’s first Wireless City project. Beijing, the 2008 host cities, began building WiFi spots several years ago and WiFi signals now cover all downtown areas (within three ring road). According to a CCID report, by 2012, WiFi hot spots in China will reach over 38,000 from 10,000 now.

China Unicom says “not so!” … there are no plans to lower the official China Unicom (Apple) iPhone price. In theory, a substantial price drop might signal “inventory clearing” for a new model iPhone. But evidently a price drop is not imminent, and if it happens, it could be months down the road.

Sidebar: Earlier this week, China Unicom announced they will launch a new Android 2.0-powered smartphone — Motorola XT701 — that will support WCDMA 3G, and the Wi-Fi/WAPI stack.

Apple has made a habit of launching new model iPhones in the summer and it would not be a stretch to imagine a “fourth generation” iPhone making an appearance circa July/Aug/Sept 2010.  This might also be the most logical time to unveil a new model(s) iPhone for China. If a new “special production run” for China is in the cards, it might (or might not) include both WAPI and WiFi. Read more background re > WAPI/WiFi on iPhone

There have been several unsubstantiated rumors in the tech blogosphere about Apple launching a low-price iPhone model for China and other large “pre-paid” (no cellular contract) markets such as Brazil, India, Indonesia, Russia, et. al.. There has also been plenty of Net “buzz” (wild rumors) about a so-called “World iPhone” that might support CDMA 3G and GSM/UMTS 3G (China Unicom’s WCDMA 3G is a GSM standard). Many tech pundits dismiss the possibility of a CDMA capable iPhone, as it’s “yesterday’s” 3G technology. However, a CDMA model could work on Verizon’s network in the US and also on China Telecom’s CDMA 2000 3G network in China. It would be interesting to see a low-price “World iPhone” that supports the CDMA/GSM/UMTS + WAPI/WiFi tandem. Alas, there are many technical, practical and political hurdles to overcome in launching such a World iPhone and I won’t be holding my breath. But sometin’ new is coming … that you can bank on.

China Unicom CEO - Chang Xiaobing

I know that in the market there is hope we will offer an iPhone with Wi-Fi … We have been holding talks with Apple in this area.

Chang Xiaobing did not say whether the iPhone would include China’s home grown version of WiFi (“WAPI”), but he did say that it “will satisfy demands in the Chinese market.”

This latest “WiFi” tease is no great surprise. Chang Xiaobing has made no secret of his support for WiFi on iPhone. In exchanges with the press before iPhone launched (October 2009), Chang Xiaobing almost had to bite his lip to avoid saying too much (definitive “WiFi is coming” statements would harm current iPhone sales). In Fall 2009, even before iPhone launched in China, Chang Xiaobing and other China Unicom execs were dropping hints in the tech press that WiFi would eventually be on the iPhone for China. China Unicom had suggested then (and now) that the ball is in Apple’s court.

The hurdle in the Fall of 2009 was China’s highly restrictive “WiFi on handsets” policy promoted and enforced by China’s Ministry of Industry and Information Technology (MIIT). Prior to the Spring of 2009, WiFi was expressly forbidden on mobile devices with cellular (calling) service. In April 2009 there was a compromise policy authorized by the MIIT that allowed WiFi on handsets as long as the phone also included China’s home grown Wireless LAN Authentication and Privacy Infrastructure (WAPI). WAPI is China’s version of WiFi. Read more backgorund about WAPI/WiFi on iPhone > here

The rules (new policy allowing WAPI/WiFi in combination) changed very late in the game for Apple and it’s entirely possible that Apple had insufficient time (before Oct 2009 launch) to address the technical issues associated with building a WAPI/WiFi iPhone for China. Moreover, it runs against Apple’s DNA to build a special model iPhone solely for one market … even if that market is China. But … never say never! The current model iPhone for China Unicom is already a special production run (no WiFi chip + many “for China” apps preloaded). If China Unicom commits to a sufficiently large iPhone pre-purchase, then Apple may entertain the idea of a WAPI/WiFi iPhone. There were reports (later denied) last August that China Uniciom had agreed to pre-purchase 5,000,000 iPhones from Apple for $1.46 billion USD. This pre-purchase could help sway Apple in favor of the WAPI/WiFi combo.

Once you input your e-mail, the site thanks you for your interest and explains that you will be notified once more information about ordering iPad is available. This does not necessarily assure that iPad will be available in China, but it’s an encouraging sign.

Another encouraging sign is the iPad SDK available for download in China.

One more indicator that China is squarely in Apple’s iPad sights is the use of Tencent’s QQ penguin in an iPad promotion (at right).

One hurdle could be Ministry of Industry and Information Technology (MIIT) preoccupation with China’s homegrown wireless standard — Wireless LAN authentication and privacy infrastructure (WAPI). Want WiFi on your mobile phone? China requires all mobile handsets have WAPI or WiFi + WAPI in combination (NOT WiFi alone).

Despite the mandatory inclusion of WAPI on handsets, the iPod Touch and Macs in China are allowed to use WiFi alone (as are many OEMs’ PCs and notebooks). Moreover, there are hundreds of thousands of WiFi hotspots across China, and despite the government’s preference for WAPI, WiFi hotspot growth is dramatically outpacing WAPI.

Bottom line … it appears that Apple can win MIIT approval to launch the iPad in China with its current configuration – WiFi (802.11n) alone or with both WiFi + 3G (supporting China Unicom’s WCDMA 3G).

iPhone Roadshow - Beijing Dec 20

China Unicom is launching a nationwide iPhone roadshow. This 46-city tour kicked off in Beijing earlier this week and is designed to educate prospective buyers. China Unicom is renting out conference centers and they have trained up staff to deliver interactive demos of many fun and practical uses of iPhone. There will be six live presentation sessions covering different iPhone features/functions. One of the objectives of the roadshow campaign is to raise awareness of how much can be done via an iPhone and its virtually unlimited number of apps.

The iPhone roadshow may also signal that we have not seen the last tweaks to China Unicom’s iPhone sales strategy. During a December 9 interview, CEO Chang Xiaobing hinted that China Unicom may be reevaluating its iPhone marketing strategies. He also stated that iPhone would become China’s best selling smartphone.

Will we see any change to the iPhone price/plans in China? That is mostly likely to happen in conjunction with the launch of a new iPhone model. There is mounting evidence that China Unicom and Apple may be developing a new iPhone for China that includes both WAPI/WiFi thereby matching the key advantage of grey-market iPhones – WiFi. When might we see this new model? No telling, but it’s not likely that a new model would be available before summer 2010.

Thanks to iPhoneLocalizer.com for the tip.

According to the PR, Vtion will establish “iPhone sales centers in Fuzhou, Quanzhou and Xiamen.” It also sounds like a data-card for laptops will be (mandatory?) part of a package sale in the Vtion outlets – iPhone + Unicom Service + data-card for your PC/Mac. No word on whether China Unicom will ever support tethering, in which case a laptop card would be unnecessary.

The PR does not specify whether Vtion will have any role in the sale of China Unicom’s new (forthcoming) mirco-cell device. China Unicom very recently announced that is would be distributing a mini wireless base station (a.k.a. femtocell) for personal and business use. The device would provide WAPI/WiFi broadband (high speed) connectivity and will be manufactured by Huawei. China Unicom is aiming the device at iPhone owners and other 3G subscribers. The micro-cell device will substantially boost indoor coverage and allow subscribers to make calls and surf the Net via the WAPI/WiFi device rather than on the 3G network. The micro-cell may be of interest to the owners of China Unicom’s WiFi-disabled phones.

Read > Vtion PR

Now for the big news … Yu Ying Tao revealed that China Unicom and Apple are working together to develop an iPhone that supports both (integrated together) the Wi-Fi standard and the domestic (China built) wireless LAN authentication and privacy infrastructure (WAPI) standard. This confirms rumors that a WAPI/WiFi iPhone for China is on the drawing board. Yu Yin Tao declined to provide any timetable for production of this model.

This is not the first time Yu Ying Tao has shared info relating to a WAPI/WiFi iPhone. See > Oct 9, 2009 iPhonAsia post

Shanghai Unicom HQ

If you search for #iPhone #China on Twitter, you’ll find hundreds of tweets reinforcing the falsehood that Apple (AAPL) has sold only 5 iPhones in China. This pathetic little number comes from articles reporting the first 2 weeks of iPhone sales on the new China Unicom iPhone portal on Taobao.com. Yes, only a handful the “official” iPhones have sold on the new site (Note: Taobao.com currently sells thousands of grey-market iPhones > see here) however, Taobao.com is hardly the only place to buy the official iPhone. China Unicom (CHU) sells iPhones through their Wo Stores and mall-store affliates. You can also buy an official unlocked (no contract) iPhone through Carrerfour, Best Buy and the Apple Store at Sanlitun. There are also plans to expand distribution through Foxconn retail outlets.

Back to the central question … how many total iPhones have been sold in China? The answer depends very much on how you ask this question. If you ask how many total iPhones since the original launch in 2007? The answer is somewhere in the vicinity of 1.5+ million iPhones have made there way into the hands of Chinese buyers.

iPhone on sale at Carrefour Beijing

If you ask how many of the official “built for China Unicom” iPhones have been sold since the October 30, 2009 launch? The answer is somewhere between 10,000 and 100,000. Update – Dec. 10, 2009: we now know that number has exceeded 100,000

If you ask how many total official iPhones were sold by Apple directly to China Unicom? Pure guesswork, but that number could be as high as 250,000. A quarter million iPhones might be the first installment of iPhones that are part of a larger China Unicom pre-purchase commitment.

A bit more background …

On August 11, 2009 China Business News reported that China Unicom agreed to pre-purchase 5 million iPhones from Apple for 10 billion yuan renminbi, a cool USD $1.46 billion. Immediately after the CBN report, China Unicom spokesman, Yi Difei publicly denied the iPhone pre-purchase. A few weeks later China Unicom CEO Chang Xiaobing offered more of a qualified response: “Not exactly as reported” (a loose translation).

Despite these denials and qualifiers, Zhou Fang, the CBN reporter who broke the story, stands by his article and states that he made audio recordings of the interviews with the Guangdong Unicom executives (Zhou Youmeng and Yu Zaonan) who spilled the beans. Adding further legitimacy to the original CBN report is an 8/14/09 post on Interfax TMT sourcing another China Unicom insider who validates the 5 million pre-order claim.

iPhone on sale at Mobile City Hong Kong

In my view, a pre-order commitment from China Unicom is almost a certainty. Apple would not build an iPhone specially configured for China Unicom (50 for China apps + WoPortal + WiFi chip removed) without a major pre-sale. The question is how many iPhones were pre-ordered and over what time? My guess is that the original rumor holds up … 5 million iPhones with a payment/delivery schedule staged-in over a 3-year timeline.

While the official (non-grey-market) iPhone sales at retail are likely somewhere between 10,000 to 50,000 launch-to-date, it’s a safe bet that Apple has booked a much higher number for (AAPL)  Q1 2010 earnings due to the probable pre-purchase by China Unicom (paid for and delivered).

Are there any catalysts that might kick-start retail iPhone sales in China? Yes. Here are a few items on my “jump start sales” wish-list:

DBS Visa - iPhone payment plan $0 deposit

• Future iPhone models that include WAPI/WiFi*
• New plans that reduce the iPhone price and/or deposit amount.
• New bank card deals ala the DBS plan offered by Planet 3 in Hong Kong. The deposit is waived for those who qualify for the DBS Visa, and the monthly payments for iPhone are quite modest.
• New iPhone/iTunes e-payment systems for those who don’t have credit cards. Apple might be moving in this direction via the new partnership with Alipay.
• An iPhone deal with China Mobile (CHL) featuring a low-priced 2G (EDGE) iPhone.
• A bit further down the path (2011/12) … a TD-LTE 4G iPhone for China Mobile.

*There have been numerous reports that a WAPI/WiFi iPhone is under consideration. China Unicom executive management, including CEO Chang Xiaobing, are on board with this notion. When (or if) might this happen? Unknown. Best guess would be Spring/Summer 2010.

Read full post > here (use Google translate)

China Unicom has made it clear that they have designs on bringing a WAPI/WiFi enabled iPhone model in the near future, possibly in the first half of 2010.

Here are new photos of a hardware disassembly of iPhone model A1324 published today on IT168.com.

Sina.com reports today (Oct 9, 2009) that WiFi will not be enabled on the first China Unicom iPhone (model A1324) due to launch at the end of the month. Sina.com (via JLM Pacific Epoch) quotes Vsens (China Unicom’s handset distribution entity) General Manager Yu Yingtao; “The company [China Unicom] is still negotiating with Apple to introduce iPhones with WiFi as well as WAPI.”

Is the hold up, as implied, Apple’s reluctance to include China’s wireless LAN application and privacy infrastructure (WAPI) standard via a dual WAPI/WiFi chipset?* …. or is this simply China’s Ministry of Industry of Industry and Information Technology (MIIT) holding up approval of a new model iPhone that will include the WAPI/WiFi stack?*

Prior rumors in China’s tech press speculated that the second model iPhone for China Unicom (model A1325 based on iPhone 3GS) might include a dual WAPI/WiFi chipset.* This model was rumored to have been submitted for testing/approval in July 2009. Thus far there have been no reports about model A1325 receiving its network access license (NAL). Without the NAL, model A1325 cannot go on sale in China. Perhaps model A1325 will receive its NAL early next year (2010)? Yet it seems doubtful that the NAL for model A1325 will be delayed beyond October as there has already been plenty of China Unicom iPhone marketing materials distributed promoting both the iPhone 3G and iPhone 3Gs (A1324 and A1325 respectively). Any delay in launching the iPhone 3GS might take some stream out of the initial iPhone sales. It is therefore more likely that model A1325 will receive its NAL before the end of the month (it may have already been issued but not announced).

It will be interesting to learn whether this model includes a WAPI/WiFi chipset.* If you take Vsens GM Yu Yingtao at his word, then this model will not have the WAPI/WiFi chipset … or if it does, the WiFi functionality will be disabled at a software level (perhaps to be reactivated if approved?).

One thing seems clear, China Unicom senior executives (from CEO Chang Xiaobing on down) have been lobbying the MIIT to approve WiFi on iPhone. It also appears that the only open path to WiFi on mobile phones in China is to go the route of a dual WAPI/WiFi chipset.*

Why the delay on approving WAPI/WiFi on iPhone? Could be for any (or none) of the following reasons:

• Rather than give the WAPI/WiFi* ready iPhone a rapid approval (i.e. less than 3 months), the MIIT is doing the bidding of China Mobile and China Telecom who are rushing their iPhone competitors to market (OPhones and CPhones respectively)?
• China Telecommunications Technology Labs (CTTL) testing and MIIT review/approval can take 3 to 6 months to complete. If model A1325 was submitted (as rumored) at the end of July, a 6 month turnaround would put approval (NAL issuance) out to end of January 2010. Yet, as noted above, I am more inclined to believe A1325 will be approved before October.
• Apple has “issues” (technical and/or financial) over inclusion of WAPI in iPhone? WAPI royalties must be paid and Apple could be negotiating with China Unicom on financial terms.
• Apple and China Unicom are working on a third, yet to be announced, iPhone model for China that will include WAPI/WiFi?
• Apple and China Unicom are holding out hope that MIIT will approve an iPhone with WiFi alone (sans WAPI)? This would require a further liberalization of China’s mobile phone WiFi policy (i.e. currently no WiFi is allowed on authorized mobile handsets unless the phone includes China’s WAPI).

*What is WAPI?: Wireless LAN application and privacy infrastructure a.k.a. “WAPI” is China’s homegrown version of WiFi. China has staked much national pride in the development of WAPI and after a long fought battle WAPI very recently (June 2009) received international standards board (ISO) accreditation. WAPI and WiFi can be layered together without hampering the functionality of either protocol. China would prefer that mobile phones use WAPI exclusively. Yet WiFi is very popular in China and the prior ban of WiFi on handsets only added rocket fuel to the grey-market importation of WiFi-enabled handsets. In order to stem the unauthorized sale of WiFi-ready phones, in May 2009, China authorized the combination of WAPI/WiFi on mobile phones, but not WiFi on its own.

The WAPI/WiFi stack is a King Solomon’s compromise – mobile users get a WiFi connection (many more WiFi hotspots in China vs WAPI) and China gets their WAPI royalties and can declare victory. China’s telecom authorities argue that WAPI provides superior encryption security. But critics say there is a “backdoor” (no proof but probable) in a WAPI algorithm that enables China’s Great Firewall (GFW) to snoop on users. File under “gee, what a surprise.”

More background on WiFi/WAPI: