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The famously tough terms that Apple managed to impose on its first operator partners, AT&T and O2 UK, have been steadily diluted as the vendor has adapted to price pressures, greater competition, and the drive for greater volume. Cellcos have got more demanding when negotiating with Apple, and in the case of China Mobile, the two sides have failed to come to an agreement at all.

Once again, on-off talks about launching the iPhone on China Mobile's network - the largest in the world in terms of subscriber numbers - have reportedly fallen apart, this time over Apple's insistence on selling software directly to consumers. The China Mobile Research Institute (CMRI), citing conversations with China Mobile's president Wang Jianzhou, told the Interfax news agency that the two companies had come close to compromise on handset pricing, the previous sticking point. But they had now failed to agree on the launch of Apple's App Store in China, something that the cellco sees as a threat to its own place in teh value chain. "Wang said China Mobile should operate the application store itself in order to maintain its advantage," the source at CMRI said. On the practical side, China Mobile said consumers almost invariably purchase mobile services and content by adding the cost to their bill, not using credit cards, as App Store demands.

Another discussion point was likely to be whether to create a 3G iPhone for China Mobile, which would need to support its unique TD-SCDMA network technology.

According to CMRI, there have been three rounds of talks between Apple and the leading Chinese cellco, starting in mid-2007, and involving the top executives on both sides. In the first round, Apple asked for 20% to 30% of China Mobile's revenues from iPhone users, which was rejected out of hand. In round two, Apple offered to sell iPhones at $600 a unit to the cellco, which would have necessitated subsidies - unacceptable to the carrier. While these issues were common to talks with most operators, a lucky few have the power to play hardball with Apple - as Vodafone also did when it rejected the company's exclusive terms for the original iPhone.

With the third issue, over the store, proving a new sticking point, Apple may now turn its attentions to China Unicom, which is smaller but may be more amenable as it seeks to build up its GSM business and create its new W-CDMA network (which would not require a specially produced iPhone).

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