By Katie Marsal

Published: 05:50 PM EST

In the tug-of-war that has kept the iPhone out of China in the two years since it's been on the market, China Unicom is purportedly closest to reach a deal but still faces an attack from dominant carrier China Mobile.

Analyst Shaw Wu of Kaufman Bros. claims to have sources aware of Apple's leanings and gives China Unicom the nod as Apple favors the finances, hardware compatibility and degree of control it would get through an agreement. It's reportedly more willing to heavily subsidize the iPhone to its creator's satisfaction and to let Apple have its usual say over the device and its software, both of which are doubtful through China Mobile. Rumors have long swirled that China Mobile is insisting on controlling the local App Store, a practice that Apple hasn't allowed once in the history of its cellphones.

The smaller of the two Chinese carriers has 'just' 133 million carriers compared to China Mobile's 488 million but is in the middle of deploying a 3G cellular network that uses UMTS and WCDMA, both standards that are already supported by the iPhone 3G and 3GS. Choosing China Unicom would let Apple keep selling the same iPhone in China as it does elsewhere while also getting more reach: the faster network should reach 284 cities within several months.

In comparison, China Mobile's government-supported TD-SCDMA standard for 3G would require that Apple incorporate a custom chipset just for the one carrier and would come with growth limitations of its own. Despite having over three times as many customers, the larger carrier will reach nearly 50 fewer cities with its 3G and doesn't anticipate the network reaching complete coverage until three years from now, or well after China Unicom's network is ready.

Wu's same anonymous contacts, however, maintain that Apple doesn't entirely consider China Mobile "out of the running" both through its sheer influence and its interest in the iPhone, which would be a victory even in a country well-known for grey market imports.

No matter who's taking the lead, the researcher doesn't see a deal with either carrier as close enough to force a change in predicted iPhone numbers for now and the year ahead. About 20 million iPhones should ship in 2009 and 26 million in 2010. All the same, he notes that Chinese shouldn't necessarily be disappointed without an official deal thanks to the nation's thriving bootleg community.

"Our sources indicate that iPhones will likely continue to flow into China," Wu says. "There are an estimated 1 million-1.5 million iPhones in use despite lack of an official carrier relationship."