Apple's iPhone, an Indian Flop, Prepares for China

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just wouldn't work in India. (In Europe, where iPhone sales have been lukewarm, many carriers reached the same conclusion.)

But Apple's India problems go beyond the issues of competition and pricing. According to Sanjay Gupta, the chief marketing officer of Airtel's mobile business, Indians just use their phones differently. With spotty data coverage and slow download speeds on non-3G networks, the iPhone just doesn't dazzle the way it does in the U.S. Also, Indian customers like to forward text messages; Nearly 70% of them do that at least once a day, says Gupta. Until recently, the iPhone didn't allow users to do that. "It's a big functionality issue," says Gupta. "The device is being judged as a phone, not as a data device."

While Apple has made headway winning acceptance from corporate IT managers in the U.S., it has had no such luck in India. Local corporations are willing to shell out $700 for BlackBerrys (RIMM) or more business-functional Nokia phones, but many perceive the iPhone as an entertainment tool for young people.

Another difficulty for Apple in India: Local partners don't necessarily have the same goal of selling lots of iPhones. Airtel, for instance, doesn't seem to mind that Indian consumers haven't embraced the gadget, since associating with Apple has helped the carrier in other ways, says Gupta. "For us, it allowed an association with iPhone as a brand," he says. "And that's definitely made us happy."

Things may change. India may soon get a real 3G network, as the government starts a 3G spectrum auction, and prices could potentially drop as newer models are introduced.

Talks with Chinese Carriers

But by midyear, all eyes will be on China, where Apple has long been rumored to be in discussions with state-owned China Mobile (CHL), the world's largest cellular carrier. Lately, speculation is focusing instead on No. 2 operator China Unicom (CHU), which reportedly will launch the iPhone in China as early as June, according to published reports in both Chinese and U.S. media. Lloyd, the Apple spokesperson, declined comment, saying Apple does not address rumors or speculation. However, Yi Difei, a China Unicom spokesman in Beijing, confirms the two companies are talking but won't commit to the rumored May 17 launch. "The cooperation with Apple is still under negotiation," he says. "It might succeed or fail. Both parties are still negotiating. The result is uncertain yet."

As Apple's India experience shows, success is far from assured in China. Like their Indian counterparts, Chinese consumers have embraced Nokia, which is the dominant brand in the local market, with everything from entry-level handsets to smartphones. Moreover, like India, China is behind more developed countries in launching 3G networks. The Chinese government also does not allow phones to have Wi-Fi functionality, worsening the user experience for many of the key, data-heavy functions on which the iPhone has pegged its success. And in China, as in India, people aren't used to signing multiyear contracts with carriers. "You are asking people to change their behavior, and that's a very big thing to ask," says Trip Chowdhry, a California-based analyst for Global Equities Research.

Still, even as it struggles in India, there's reason for Apple to be optimistic about China. Clearly many Chinese like what Apple has to offer: According to analyst estimates, there are as many as 1 million smuggled iPhones (with illegal Wi-Fi access) already floating around in the Chinese market.

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Srivastava reports for BusinessWeek from New Delhi. With Huang Zhe in Beijing.