Apple Denies Chinese Media Claim of IPhone Security Risk

Apple Inc. (AAPL) said location tracking functions of its software can't be used to identify activity of individuals in China as it seeks to refute claims on state-owned media that its iPhones pose a security risk.

China Central Television reported on July 11 that the software may result in a leak of state secrets. The feature is designed to speed up applications with data stored on the phone and protected by a password, Apple said in a response on its Chinese website.

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U.S. technology companies are attracting scrutiny in China amid escalating tensions over cyberspying after five Chinese military officers were indicted for allegedly hacking into American companies. Apple, Google Inc. (GOOGL) and Facebook Inc. (FB) have been criticized by state media since U.S. prosecutors announced the charges in May, which followed last year's revelations by Edward Snowden of a National Security Agency spying program.

"There has been a lot of back and forth lately between the Chinese and the U.S. governments on cyberspying and digital security issues," James Roy, a Shanghai-based analyst for China Market Research Group, said today. "A report on CCTV is not the same as a government ban on iPhones, but all the same this should be alarming for Apple."
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The location tracking function isn't a default setting on Apple devices, which means users have to choose to enable it and the feature can be turned off, Apple said. The company said it has never worked with any government agency for access to its products.
Singled Out "We want to make sure all of our customers in China are clear about what we do and we don't do when it comes to privacy and your personal data," Apple said in the statement. "We appreciate CCTV's effort to help educate customers on a topic we think is very important."
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Shares of Apple were little changed at $95.22 on July 11 in New York.
Apple, based in Cupertino, California, posted March quarter sales of $9.3 billion from the greater China area, a region that includes Hong Kong and Taiwan, according to data compiled by Bloomberg.
"Tracking of location features are almost standard across all major smartphone vendors/platforms globally," said Bryan Wang, China country manager for Forrester Research. "Apple was singled out by the state media CCTV probably in alignment with the critical negotiation timing between the U.S. and Chinese governments now, where a lot of things are on the negotiation table and also with consideration that Apple's China revenue is the largest among all U.S. companies."
Marketing Spend The CCTV report and other criticism by state media are not likely to impact iPhone sales, according to Sandy Shen, a Shanghai-based analyst with Gartner Inc.
"Many Apple fans probably don't care about this," Shen said. "Many mobile apps collect location data without any clearly stated policy as to how the data is being collected and used."
Last month, a commentary on the microblog of the People's Daily newspaper said Apple, Microsoft Corp. (MSFT), Google and Facebook cooperated in a secret U.S. program to monitor China.
CCTV, the national broadcaster, said a provincial government was told not to buy computers with Microsoft's Windows 8 operating system. It quoted a professor calling the software a potential threat to China's information security.
The report by CCTV on the iPhone came after China told its state-owned wireless carriers to cut marketing expenses because they overspent on subsidies and advertising for devices such as the Apple handsets, people familiar with the matter said.
Xiaomi, Lenovo The carriers are China United Network Communications Ltd., China Mobile Communications Corp. (941) and China Telecommunications Corp., which each have a Hong Kong-listed unit.

China Mobile, the world's biggest carrier, began selling the iPhone in January after six years of negotiations. Discounts for the Apple device are one reason why subsidies on all phones will rise 29 percent this year, Chief Financial Officer Xue Taohai said in March.

A reduction of subsidies would make high-end devices like the iPhone or Samsung Electronics Co.'s Galaxy S5 more expensive in the world's largest smartphone market. The cut would benefit domestic phone makers including Xiaomi Corp., Lenovo Group Ltd. and Coolpad Group Ltd., which offer less costly models.

To contact Bloomberg News staff for this story: Jeff Green in Southfield, Michigan at jgreen16@bloomberg.net; Edmond Lococo in Beijing at elococo@bloomberg.net

To contact the editors responsible for this story: Bernard Kohn at bkohn2@bloomberg.net Robert Fenner, Suresh Seshadri