Apple's iPhone a tougher sell in Europe?

Editor's note: This story initially incorrectly reported the discount that a German iPhone customer could receive by crossing the border and purchasing a unit in France. It's 250 euros.

Apple's learning fairly quickly that Europe is a very different place, especially when it comes to mobile phones.

The iPhone went on sale Wednesday through wireless carrier Orange in France, marking the third European country to carry the phone within its borders. The launch also marked the debut of the third pricing strategy for the iPhone in the three countries: France, Germany, and the United Kingdom.

Apple CEO Steve Jobs introduces the iPhone to the U.K.

(Credit: Crave UK)

It appears that at least for a while, the iPhone is going to move more slowly for Apple in Europe. Orange said hopes to sell 100,000 iPhones by the end of 2007, and 400,000 to 500,000 in total by the end of next year, according to several reports Tuesday. Apple wants to sell 10 million iPhones next year in total, after expanding to Asia some time in 2008.

Was Apple blas? about the challenges it faces in Europe? The device's debut in one of the most hotly contested mobile phone markets in the world has been a little chaotic, with last-minute changes to pricing plans that don't appear to have been part of the plan.

Orange, the "exclusive" carrier of the iPhone in France, offers three payment plans. You can purchase an iPhone for 399 euros ($592.78) and sign up for one of the special "Orange for iPhone" plans, which range in price from 49 euros a month to 119 euros a month depending on usage. You can buy an iPhone for 549 euros if you want to use one of Orange's other rate plans. Or, you can buy an iPhone for 649 euros ($964.20) with no plan.

The only company that can sell you an iPhone in France is Orange (Apple doesn't have any stores in France) but it sure as heck isn't going to be the exclusive carrier. French law requires that carriers offer their customers the option of an unlocked phone. That will cost you 100 euros today, but if you're willing to wait six months, you can have it unlocked for free.

So French shoppers who want an unlocked iPhone today will pay the equivalent of $1,112,77, which is actually a significant bargain over what their German neighbors are being asked to pay for a key to other networks. After a legal challenge from rival Vodafone forced its hand, T-Mobile agreed to offer an unlocked iPhone in Germany for the equivalent of $1,478 (at last week's exchange rate).

At least in U.K., Apple's one-phone, one-carrier strategy is still in place. O2 and Apple have yet to release any sales figures, although O2 said it was its "fastest-selling" launch. No matter what, however, any expectations for lines and hoopla similar to what happened stateside on iPhone Day did not materialize in Blighty.

Simply put, Europe is different. Entering the European mobile phone market from the United States is like getting called up to the majors after just a few months in the minors.

One of the many things I've heard from U.S. iPhone owners is that many of them were relatively new to smartphones, especially the idea of getting e-mail and anything more than a real basic stripped-down Web page on their phones. They bought the iPhone because of its user interface, not because it was a data phone, although they quickly grasped what they had at their disposal.

And they didn't care that they'd be locked to AT&T for two years, because two-year wireless contracts are the norm in this country. Maybe that will change in upcoming years following Verizon's announcement earlier this week that it will open up its network, but it will take a long time before all of us are using our phones that way.

Unlocked iPhones are available through official sources in France and Germany, and there's nothing Apple can do about it.

(Credit: CNET Networks)

It seems Apple didn't anticipate the difficulties it would have selling the first generation iPhone to European customers and carriers under the same terms and conditions that AT&T and O2 were willing to accept. That situation could very well change next year, when Apple is expected to unveil a 3G phone that would be much more attractive for both consumers and carriers.

But how could Apple possibly have expected that it would be able to sell locked, exclusive iPhones in Europe going into the launch? A German judge quickly imposed an injunction after Vodafone aired its complaints (which were opportunistic, to be sure). But from that swift action it would appear the law regarding locked cell phones wasn't exactly murky, although the carrier said it would attempt to "clarify" the issues.

Likewise, from the pricing discrepancies, it's hard to imagine that the current situation was part of the original plan. A German citizen living on the French border could cross the old Maginot Line and pick up an unlocked iPhone at a 250 euro discount, and then use it with any German carrier, without having to pay any sort of additional import tax. Perhaps the T-Mobile and Orange "exclusive" deals don't transfer as much revenue to Apple as the company gets from AT&T, which is likely the reason behind the steep premium to be paid for an unlocked iPhone.

As always, we have to remind ourselves that this is very early days for Apple in this market. It has very little experience marketing mobile phones and even less experience negotiating tough deals with carriers, who still rule this industry.

Just look at Apple's early dance partners. AT&T's Stan Sigman told attendees at Macworld earlier this year that he signed an exclusive (and expensive revenue-sharing) deal with Apple to distribute and promote the iPhone without having even seen the device. O2 was so eager to be the exclusive iPhone carrier in the U.K. that it allowed Apple to throw in a free subscription to The Cloud--a U.K Wi-Fi hotspot aggregator that offers access to more than 7,000 hot spots--even though that almost guaranteed that iPhone users would do any heavy data action over Wi-Fi and deny O2 a cut of that revenue. Not exactly a bunch of Red Auerbachs, there; Apple must have gotten almost everything it wanted from those two carriers going into the negotiations.

Of course, Apple has one very powerful negotiating chip: a sweet product. I've been to several conferences and conventions this year about the smartphone industry, and Apple's user interface and design prowess has come up in every single one--the CTIA Wireless conference devoted an entire session to it.

The entire wireless industry is trying to figure out what to do about Apple's iPhone. But Apple has to do a better job figuring out how to navigate the complicated minefield that is the international wireless industry. A strategy that works in this country won't necessarily work in other places; just ask Dell, Disney, or the National Football League.

[chonnom]

Asia and Europe are different animals

A non 3G phone will not sell well in either theater; I'm not a tech-guru but I don't believe the iphone is 3G. Japan and S. Korea (the two biggest markets in Asia for a high-end device) are 2 of the most advanced cell-phone-using countries in the world. Gimmick hunters will buy an iphone but without the most up to date connection tech, I believe sales will be sluggish. S. Korea will unveil 4g phones within the next year and since the iphone has a pitifully small megapixel camera, I don't think people will be waiting to snatch this up here (Asia) until Apple gets with the game (technologically speaking). My free Japanese phone (which was unlocked for free and I can use in the US) has a 4 megapixel camera, a bar-code reader, infra-red and wi-fi, and a 3-inch screen. I don't see many Japanese or Korean consumers wanting to downgrade to a less than 3G phone no matter who makes it or that it has a touch-screen (whoopie).

[SteenMachine]

True, but

I don't think Apple would introduce the current iPhone to the Asian market. I'm sure they recognize the cellular-savvy market over there. That's why they are not entering Asia until 2008, so they can put together a strong package (i.e., 3G) to sell. The current US market was primed for the iPhone, as was the EU despite it's slightly tougher market. Apple "gets with the game" and is appropriately picking their battles.

[bob1960]

Europe and Asia have more savvy cell phone users.

Who said Apple expected booming sales in Europe? <br /><br />Even I could see that the big draw to the iPhone in the U.S. was the fact that most cell phone users aren't all that savvy with what they can do with them yet. Europe and Asia has a much more active cell phone community, and not just business users have powerful phones and sophisticated applications. Certainly the UI of the iPhone is a significant change in how to interact with a cell phone, but the current lack of legal native apps and it not having 3G makes it an expensive toy when compared to the tons of cell phones available outside the U.S. with solid 3G networks and tons of software available.<br /><br />However, if Apple wanted to get into the market, using the U.S. as a starting platform and then expanding throughout the world just makes sense, no matter how different the markets are from country to country.<br /><br />I suspect that the iPhone would be just another phone if it had started selling in Asia first, then tried to expand outwards. Whenever I want to buy a new cell phone, I always ask my European friends for advice, because I know they are exposed to much more variety and features than I am in the U.S.<br /><br />I would be shocked to see that Apple didn't expect this to happen...

[shadowself]

Why is 100,000 poor?

France has about one fifth the population of the U.S. By comparison if France expects to sell 100,000 iPhones in about a month this would roughly equate to a half million iPhones sold in the U.S. in the same period.<br /><br />Did ATT&#38;T and Apple (since the phones were sold by BOTH companies in the U.S.) sell 500,000 iPhones in the first month? NO! <br /><br />Now take into account that there are no dedicated Apple outlets in France. This means that selling 100,000 iPhones by the end of the year is actually pretty high expectations. Apple will be pleasantly surprised if that number is realized since it is better than any other launch period has been so far.<br /><br />To say that expectations of 100,000 iPhones by the end of the year signifies that the iPhone is selling poorly in France (and then extrapolating that to say it is not selling well in Europe) is just pure BULL.

[Jenifer Simpson]

Apple IPhone not disability accessible

With half a dozen complaints from consumers in over at the Federal Communications Commission about how this Apple IPhone is neither hearing aid compatible nor usable by persons with vision disabilities, I wonder what the next Apple phone will look/feel like? Does convergence mean leaving behind anyone who is not 20 something with regular vision and hearing?

[mailbox001]

Newton 2.0

Asia will be harder to sell to since that region is more tech savvy then the rest of the world. Europe's sales should be an indicator of that.

[ncollingridge]

Excellent Article

Very well balanced. Credit where credit's due - too many times in <br />the past I have read unbalanced articles on CNet but this one just <br />shows that you can do it!

[imacpwr]

Tom Krazit, your prices in Europe are WRONG..!!

The TRUE price for an unlocked iPhone in Germany is 350? <br />MORE than in France..!! Not 150? as you reported.<br /><br />France: 649?<br />Germany: 999?<br /><br />See Financial Times (Germany): <br /><a class="jive-link-external" href="http://ftd.de/technik/:Entsperrtes%20Frankreich/285262.html" target="_newWindow">http://ftd.de/technik/:Entsperrtes%20Frankreich/285262.html</a><br /><br />or iPhone News Blog of Germany:<br /><a class="jive-link-external" href="http://www.iphone-news.org/" target="_newWindow">http://www.iphone-news.org/</a>

[Tom Krazit]

We're both wrong

It costs 100 euros extra to unlock the iPhone in France today, so 649 euros plus 100 euros today for an unlocked phone. If you wait six months, you don't have to pay that 100 euros, but today you do.<br /><br /><a class="jive-link-external" href="http://www.francetelecom.com/en/financials/journalists/press_releases/CP_old/cp071128.html" target="_newWindow">http://www.francetelecom.com/en/financials/journalists/press_releases/CP_old/cp071128.html</a><br /><br />Still, 999 minus 749 is 250, not 150, meaning I messed up the easy part. We'll fix.

[Ian Kirkland]

An even tougher

sell here in Canada since the only suitable carrier here is <br />seemingly refusing to bite the Apple. <br />Because of our proximity to the US and the ease of getting <br />across the border to buy the iPhone AND the ease of buying <br />them on eBay, for example, where 700 or more sell into <br />Canadian hands each day, the originally strong demand for <br />them here is abating. <br />If 1000 iPhones are switched on in Canada every day since <br />launch, you talking about 150000 iPhones in peoples hands here <br />already. Even though they are not officially available in Canada.<br /><br />Those numbers must certainly be cutting into the carriers <br />interest in even signing with Apple.

[Proustian]

The iPhone will flop in Europe when the GPhone comes out

Google's GPhone uses the Android technology and Java to be open sourced. Apple's iPhone forces developers to hack it in order to sell an iPhone user a ringtone not from the iTunes store, etc.<br /><br />The GPhone is open up to all developers, and can be used on almost any cell phone network, and anyone can develop for it as the Android development kit is free and the Java SDK from Sun is free also.<br /><br />Remember that Europe had the Nokia phones and Linux and Symbian are operating systems that you don't need to hack into as their are open source development tools for them for free. Europe leads the world in cell phone development as a result.<br /><br />Nokia already has a phone that competes with the iPhone, which has all of the iPhone features, plus some the iPhone doesn't have, plus no lock to only one cell phone company, and anyone can unlock a locked Nokia phone.<br /><br /><a class="jive-link-external" href="http://www.bloggingstocks.com/2007/08/29/as-nokia-launches-itune-and-iphone-competition-motorola-fades/" target="_newWindow">http://www.bloggingstocks.com/2007/08/29/as-nokia-launches-itune-and-iphone-competition-motorola-fades/</a><br /><br /><a class="jive-link-external" href="http://gigaom.com/2007/07/06/nokia-n800-does-everything-iphone-doesnt/" target="_newWindow">http://gigaom.com/2007/07/06/nokia-n800-does-everything-iphone-doesnt/</a><br /><br /><a class="jive-link-external" href="http://techdigest.tv/2007/05/specs_war_motor.html" target="_newWindow">http://techdigest.tv/2007/05/specs_war_motor.html</a><br /><br />I mean seriously when Europeans have a choice, either the very limited iPhone, or the unlimited Nokia or GPhone, which one will they choose? If the Nokia or GPhone is cheaper than the iPhone, it will make their decision a lot easier.

[msof]

not so easy using a French iPhone in Germany - or elsewhere

If you are trying to use the iPhone for anything other than telephony, you need all sorts of settings (MMS, IP, ...) that are completely operator-specific. It is entirely in Apple's discretion to make it extremely difficult to change these settings from the default the phone was shipped with. For most non-technical users, this is probably a high enough barrier to stop using an iPhone from another provider - especially if ever software update from Apple has the potential of resetting everything to default values.<br /><br />From personal experience, I can say that even on a phone that doesn't try to make it difficult on puropose, it is difficult to set up Internet and Multi Media Messaging for a new provider if the phone was sold without a pre-programmed profile for that provider.<br /><br />Even today, consumers in Germany often pay more for the exact same phones than you pay in some neighboring countries (such as low-wage Poland) simply because it is too much of a hassle having to configure the phone. The iPhone, with its frequent synching to a computer and Apple's complete control over the settings is going to make customers even more hesitant to go this route.

[wjcunning]

Wake up America

Cell service in American needs a major overhaul. It's artificially expensive, and embarassingly archane. In Europe, phones are just cheap appliances. Your cell service is defined by what SIM chip(s) you have, not which phone you have. ALl phones are unlocked, and any SIM goes in any cell phone body.......and IT's CHEAP by comparison.<br /><br />If US cell customers knew just how bad they have it, they would revolt.<br /><br />Good thing we are kept sheltered and dumb by our cell phone carriers.

[grossph]

Look at the history for the answer

I am tired of hearing "American Cell services is poor" or <br />"europeans are more savvy" etc....if you look at the reason WHY <br />you would understand much better.<br /><br />Having worked as a consultant in Telecom for many years i have <br />a very different perspective. The reasons eurpeans use there <br />cell phones more is because many of them pay for each and <br />every local land line phone call. So it was actually cheaper to <br />use a cell phone then a land line. This is what drove a lot of the <br />convergence to cell in europe. <br /><br />In the US you can travel from one end of the country to the other <br />and every local call at you friends, family, etc homes is free <br />(albeit your local monthly bill) so there was no need to have cell <br />phones do everything. Also, remember you are dealing with <br />varying countries....it was expensive to call someone across the <br />border as it was an international call. And if I am not mistaken, <br />the caller pays the cell minutes, not the receiver (or it might be <br />the other way around) but here in the states both pay...<br /><br />All these items drive adoption and the type of "wants" of the <br />users. In europe you have internet cafes everywhere....WHY, <br />because it is expensive to have high speed access in ones <br />home...but a 3G phone can provide them what they need from <br />the web.....in the states, I believe high speed adoption is nearing <br />70%....<br /><br />So please don't continue the line "americans are dumb, etc" and <br />that is why there cell phone system is the way it is....do a little <br />reading and thing about cause and effect....

[Tinman52]

N82, N95, K850i

Cheap?<br /><br />They may be ahead of us, but the best phones aren't cheap. The iPhone lacks a lot of things that other phones in Europe and Asia have had. However, those phones charge steep prices for those features too.<br /><br />You lose the cool touch screen in most of the above phones, but you gain a lot of additional features, which make the iPhone look pretty arcane except for its flashy interface.

[one tenth hero]

Price in UK

Do you think maybe one reason for iPhone sales getting off to a slow(er) start in the UK is that we're expected to pay £70GBP ($140USD) more for the same product than U.S. users pay?<br /><br />As if it's not bad enough that it rains all the time here - we constantly pay more for everything too.

[Mr Tfly]

Totally wrong!

I live in europe by the way, don't know anything about american cell phone use and habits and carriers and price plans but you were totally wrong on whatever you were talking about that i can't remeber now.

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