“It’s official” is the phrase that introduces news from Apple Inc. when months of Apple-fueled media frenzy reach fruition with actual announcements.
Last week, the top operators in the United Kingdom (O2), Germany (T-Mobile) and France (Orange) said they will sell the iPhone at roughly similar, unsubsidized prices starting Nov. 9.
Analysts said the operators are willing to pay considerable if undisclosed slices of their related service revenue to Apple, betting that the iPhone maker has as many fanboys in their countries as it does in the United States, where the firm sold 1 million units in 74 days in a deal with AT&T Mobility.
Revenue-share ranges
Whether that bet pays off for Euro-operators will be examined closely, just as the Apple-AT&T deal is being parsed here, because the Apple model-our device is so cool, you should pay a slice of related revenue just to carry it-conjures bold implications.
Analysts’ guess-timates for O2 UK’s revenue-share with Apple, for instance, range from 10% to 40%, depending on whether the purchaser is already an O2 subscriber (perhaps 10% of related revenues for Apple, said Bill Ray, columnist for the U.K.-based, online tech-blog, The Register) or a new subscriber (40% is not inconceivable, according to Ray).
But as the need for this speculation illustrates, last week’s news from across the Atlantic answered a few small factual questions while leaving others unanswered, raising larger issues.
The answers: The device goes on sale Nov. 9 by O2 U.K., Germany’s T-Mobile and, presumably, Orange France, for $537, $556 and (no price or firm date yet from Orange France), respectively.
The questions: How much iPhone-related service revenue will Euro-operators fork over to the perfectly unshaven, jean-clad American whose company created the device? What impact will iPhone sales have on incumbent handset vendors? Do the revenue-sharing agreements presumed to exist between Apple and its operator partners presage a new order in the global wireless industry? If so, can any company besides Apple take advantage of it?
And were the operators’ executives aware that Apple would announce an iPod Touch device-with the potential to cannibalize iPhone sales-before the ink dried on their contracts? At least O2 CEO Matthew Key seemed to acknowledge that Apple had declined to mention the Touch before the Champagne was served, according to Gavin Byrne, analyst at Informa Telecoms, who attended the O2 event at Apple’s Regent Street store in London’s famed West End shopping district.
These are largely rhetorical questions, given the confidentiality that reigns over Apple’s agreements with its partners. But with Jobs’ acknowledgment that his Euro-wheeling-and-dealing had left jilted suitors, word may trickle out on the shape of Apple’s deals.
Short-term, long-term implications
The underlying theme for Euro-operators last week: the device provided a means to differentiate oneself from competitors in mature markets where customer acquisition and retention is a primary concern.
“Brand appeal is very important,” said Ray. “O2 wants its name associated with what’s cool. O2 is prepared to pay a serious amount of money just to get its name associated with cool things and the iPhone is cool.”
A handful of U.K.-based analysts who focus on the global wireless industry also weighed in with their thoughts.
John Devlin, an analyst at IMS Research, suggested that early adopters would crush stores on Nov. 9, others will await the expiration of their current contracts and yet a third wave may be tempted when a 3G version hits the market, perhaps by the next holiday season.
“The impact of the iPhone will be limited to some degree,” Devlin said. “Forecasts of unit shipments are not huge. The iPhone will boost the premium market and, to some degree, all manufacturers will welcome this. While many OEMs were working on new, high-end devices-such as the LG Prada, the Nokia N95 and HTC’s Touch-this has definitely sharpened their game.”
Pete Cunningham, analyst at Canalys, suggested that the operator-vendor, revenue-sharing model between the parties may lead Euro-operators to shift away from subsidies and, possibly, open the door to purveyors of desirable devices to choose between a subsidy or a revenue-sharing arrangement. Cunningham acknowledged “there are very few special products like the iPhone.”
“The iPhone is a step forward for the industry and it’s a rude awakening for other vendors,” Cunningham said.
Though Nokia and Sony Ericsson’s handset sales could be imperiled, Cunningham said that the two incumbent vendors are well-entrenched with solid operator relations and thus he sees a minimal impact. Sony Ericsson, for its part, is expected to respond with a high-end device for Vodafone, Europe’s largest carrier and a conspicuous absentee from last week’s announcements. Cunningham said he would watch how Apple develops a family of iPhone-like products and agreed that the iPod Touch could cannibalize iPhone sales.
Ray remained skeptical that U.K. consumers would opt in large numbers for the iPhone.
