Here’s How China Mobil Sold Millions of iPhones without 3G

China Mobile Ltd. (NYSE:CHL) was not able to get Apple Inc.’s (NASDAQ:AAPL) to manufacture iPhones for its 3G network. Even so, the carrier still signed up almost 5 million smartphone users in four months. How did they do it? They offered Wi-Fi instead!

China Mobile Ltd (NYSE:CHL), the world’s biggest carrier, has advertising for the iPhone 4 all over the Beijing subway and its shops. Customers prepaying for Wi-Fi service can get gift cards worth as much as 2,800 yuan ($441). That’s completely different than how AT&T (NYSE:T), Sprint (NYSE:S), and Verizon (NYSE:VZ) are marketing to iPhone lovers stateside.

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Paul Wuh, an analyst at Samsung Securities Co. in Hong Kong said about the ads, “They realize this is working. They have 10 million people who were willing to buy an iPhone without any subsidy and use it on the 2G network, so now they are just encouraging that by offering this Wi-Fi package.”

The iPhone does meet standards used by China Mobile’s (NYSE:CHL) 2G voice and Wi-Fi data networks. iPhone owner Lynnerd Lang said, “I don’t think 3G is really necessary to enjoy it. If I need to use the Internet, there is Wi-Fi. If I want to download an app, I do it on my MacBook at home and sync it to the phone.”

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According to Chairman Wang Jianzhou, China Mobile (NYSE:CHL) has more than double its iPhone users to 9.5 million from May to September since implementing this strategy. Wang met with Steve Jobs in early 2010 to discuss making an iPhone compatible for their network but the talks were unsuccessful.

Kelvin Ho, an analyst with Yuanta Securities Co. in Shanghai, says, “The competition is heating up, and China Mobile (NYSE:CHL) can’t avoid spending on handset subsidies. Wi-Fi does definitely help them retain customers, but what they need to do is move traffic from 2G to 3G, not to Wi-Fi.”

China Mobile’s (NYSE:CHL) parent company, China Mobile Communications Corp., is now testing a new 4G network using the international TD-LTE standard. Wang said last month the company received a “positive answer from Apple” that it would make an iPhone for it.

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