China Unicom (CHU), the second largest Chinese wireless carrier, is reportedly planning to launch iPhone with Wi-Fi (wireless broadband) function in mainland China. The carrier is currently working with Apple (AAPL) regarding this advancement. However, no specific timeline for the launch has been announced.
 
This represents a major step by China Unicom, as lack of Wi-Fi support in the Chinese version of the iPhone has been a major hindrance in its wider market adoption. If the launch materializes, the company plans to compensate the current iPhone users (who lack Wi-Fi) by allowing greater use of its 3G network.  
 
China Unicom launched iPhones across 285 cities in mainland China in October 2009 under a three-year agreement. However, per the mandate by China’s Ministry of Industry and Information Technology (MIIT), Apple and China Unicom had to disable the Wi-Fi function. Instead, the regulators demanded the use of WAPI, a Chinese wireless broadband standard, in the iPhone.  
 
However, the MIIT revised the regulation in April 2009 allowing Wi-Fi function on iPhone as long as the device also includes WAPI (a WAPI/WiFi combo). Unfortunately, it was too late for Apple and China Unicom as by that time the iPhone was already redesigned to exclude the Wi-Fi capability. The companies did not have enough time to address the technical issues to develop a WAPI/WiFi iPhone.   
 
iPhone’s initial uptake in China has been lackluster, partly due to the device’s high price. China Unicom has priced iPhone 3GS at RMB6,999 ($1,020) without a service contract, which compares to $699 (excluding contract) charged by AT&T (T) in the US . Given this exorbitant price tag, many people are buying the device in the grey market cheaper.
 
Nevertheless, the iPhone represents a major opportunity in wireless for China Unicom as it continues to face downward pressure on ARPU due to stiff competition from its peers China Mobile (CHL) and China Telecom (CHA). China Unicom has sold more than 300,000 units of the device in 2009 and hopes iPhone sales to eventually cross 5 million units.
 
Moreover, iPhone is boosting the uptake of the company’s 3G WCDMA network while offering a competitive edge over its larger rival China Mobile, which is aggressively promoting the Android-based smartphones (called “Ophone”).
 
China Unicom is aggressively pursuing the development of its own version of Android phones (under the “Uphone” brand) leveraging its proprietary “UniPlus” operating system, which is based on the Google’s (GOOG) Android platform. The government backed Uphone project represents China Unicom’s second biggest opportunity in the domestic 3G handset market.
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