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 blasé 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.
Without a doubt, the reverberations of a European court's decision to uphold stiff remedies for Microsoft's anticompetitive behavior were felt in more than one legal office in Silicon Valley. But which ones?
The top three candidates? Intel, Google and Apple. Intel is facing antitrust scrutiny all over the world, and Google is so ubiquitous that it has become a verb. Apple has raised the ire of European regulators for some time with its iTunes/iPod juggernaut.
The Google era is relatively young, and since I don't cover that area, I'm not going to opine on the effects of the decision to their business. But I have spent a fair amount of time over the last five years writing about Intel and Apple.
Let's take Intel first. European investigators are all over the company right now, having issued a statement of objections to Intel's pricing schemes in Europe, which the European Commission believes excludes AMD from fully participating in the European market and ultimately harms consumers. Intel is preparing its answer to that statement of objections, but the EC's boost of confidence coming off the Microsoft decision could mean that it feels much more confident challenging that answer. The EC can agree with Intel, ask for further explanations, or find its answers unsatisfactory and take action.
As for Apple, the company is currently embroiled in two disputes with European officials. It spent part of its European iPhone tour this week in Brussels meeting with regulators and record labels over the different prices for iTunes songs in different European countries. Regulators in France and Norway have also objected to the fact that songs bought through the iTunes store will only work on iPods.
So, does the Microsoft decision mean the EC feels more emboldened to take on iTunes? I'm not so sure.
Apple does indeed have a dominant share of the market for online digital music, something like 70 percent worldwide. But it doesn't have a dominant share of the music distribution market as a whole.
The EC's decision was centered around how Microsoft made it harder for other applications to work with Windows, in that it was forcing people to use its media player software and limiting the release of information needed by other software to make their products work better with Windows. The corollary here would be that Apple is forcing me to use an iPod if I want to shop for songs on iTunes, and it's forcing me to use iTunes if I want to purchase a song for my iPod.
Is Apple making it harder to use the iPod by making iTunes the only source of downloaded music for the iPod? Perhaps if iTunes was the ONLY source of music for the iPod, then you'd have a beef. But that's not the case.
Whatever your thoughts on Steve Jobs' essay on DRM back in February, few disputed his statement that only around 3 percent of the music on the average iPod was purchased from the iTunes store. If you really want an iPod, but don't like iTunes, you can still acquire music for your iPod from the good old corner record store, or the bad new record warehouse in your local mall. And Rhapsody says you can play individual tracks purchased from its service on the iPod.
So maybe you really like iTunes, but you want to use another music player. It's true that iTunes songs won't work on other MP3 players. But the iTunes Store is not the only game in town: there are plenty of other online music services like Rhapsody that can fill your Sansas or Zens, and they even offer you the subscription option if you want to go that route. And, of course, you can still buy CDs.
The argument against Apple would have to come down to this: iPod customers are being egregiously harmed by their inability to purchase music ONLINE from anyone but Apple and have it instantly delivered to their computer. Or, that iTunes customers can only use iTunes songs on iPods, even though if they don't have an iPod they can acquire the same songs from a variety of different outlets, both brick-and-mortar and online.
Is that really harm? An inconvenience, perhaps, but if the legal standard for harm is having to leave the house to buy something, we're all doomed. If you've got to shop online, there's plenty of stores that will sell you a CD over the Internet.
At least, that's the situation today. If the CD distribution market disappears, and downloading becomes the only way to acquire digital music, then Apple might have to make some changes, such as dropping DRM altogether or opening the iPod up to other copy-protection formats. But that day hasn't come and won't arrive for some time.
Besides, I think Apple's legal department is worried about more near-term concerns these days.
Apple has chosen T-Mobile, O2, and Orange as its European launch partners for the iPhone after wrangling a revenue-sharing agreement, according to the Financial Times.
The four companies are set to announce their partnership by the end of the month, the report said. The deals would require the carriers to share 10 percent of all revenue from voice and data services over the iPhone with Apple, according to the report. Apple has a revenue-sharing agreement in place with AT&T, the exclusive iPhone carrier in the U.S.
No new details surfaced in the report about the type of iPhone that would hit Europe, but most industry observers think Apple has a 3G model in mind for across the pond. T-Mobile provides mobile service to Germany, Orange operates in France, and O2 is based in the U.K.
Apple has said it wants to launch the iPhone in Europe by the end of this year. Tim Cook, the company's chief operating officer, mentioned that Apple wants to start in Europe with "a few major countries," and France, Germany, and the U.K. probably fall into that category.
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