Apple

Like it does in most countries, Apple has a preferred wireless carrier in the United Kingdom. In this case the carrier is O2, but that may not be the case for long, at least for the iPhone 3G.

(Credit: Apple)

According to a report on Mobile Today, Apple may open up iPhone 3G sales to other wireless carriers in the U.K., namely O2 competitors Orange and T-Mobile. O2's exclusive with Apple reportedly ends in September, giving Apple a couple of months to set up other deals.

T-Mobile is so sure that they will get the contract for the iPhone 3G that its call center employees have already begun telling customers that it may have the iPhone in the future, according to Mobile Today

If Apple were to open up the iPhone to other carriers it could increase sales of the older model phones, while continuing sales of the new iPhone 3GS with O2.

Many people in the U.S. are hoping Apple will do the same thing here. Rumors of talks between Apple and wireless carrier Verizon have been floating around for months, but so far nothing official has happened.

Verizon's work on its 4G network, which is based on the GSM standard, have kept the rumors alive. AT&T is said to be negotiating with Apple to keep its exclusivity deal.

The preorder process for the iPhone 3G in the U.K. was taken offline Monday after a flood of interest.

(Credit: O2)

If the online demand for the iPhone 3G in the U.K. is any indication, Apple, O2, and U.S. carrier AT&T could be in for a long weekend.

O2, the U.K. carrier of the iPhone, had hoped to deflect some of the expected demand for Apple's new iPhone, scheduled to launch Friday, by taking preorders for the phone. It sent text messages to existing O2 customers Monday morning informing them of a chance to upgrade to the iPhone 3G. But that prompt overwhelmed O2's Web site Monday, forcing the carrier to halt the upgrade process just minutes after it began, according to a report in The Register. The carrier was likewise forced to pull a separate preordering system for new customers.

Potential iPhone 3G customers in the U.K. were apparently told that their new iPhones would be delivered by courier on Friday morning and activated at home, which is interesting given the strict in-store activation policy that seems to be in place for the U.S. launch on Friday morning. Each iPhone 3G transaction could take several minutes depending on whether the person is a new AT&T customer or an existing one, in comparison to last year's quick in-and-out process.

Even if it takes a while, however, strong demand in the U.K. is good for Apple, which did not see as much demand for the original iPhone in Europe as it did in the U.S. The lack of 3G networking and a GPS chip in the original iPhone were considered obstacles to European adoption, and those have been addressed with the second-generation model.

iPhone users in the U.K. will have an option to upgrade to the new iPhone 3G without paying full price for a new model.

O2, the exclusive carrier of the iPhone in the U.K., will offer a free iPhone 3G to customers who opt for one of its high-end rate plans, and a reduced-price iPhone for those who take the midrange plans. Interested customers will have three months following the July 11 introduction of the new iPhone to sign up for the program, which will require a new 18-month contract.

Specifically, the 8GB iPhone 3G will be available for free if O2 customers pick a 45-pound ($87.90) or 75-pound rate plan. Customers can get a free 16GB model if they choose the 75-pound plan. Depending on which one of O2's other plans customers pick, they can get a 8GB model for 99 pounds or the 16GB model for 159 pounds.

It doesn't seem like AT&T is going to offer a similar upgrade path in the U.S. Monday's press conference revealed that AT&T is hiking the cost of its iPhone data plans, but made no allowances for an upgrade path to the new model--other than buying a new one at full price, of course.

That's probably because there are far more iPhone users in the U.S. than in the U.K., and the cost of upgrading the U.K. installed base would be far cheaper than pulling off the same stunt in the U.S.

It will be interesting to see how iPhone 3G upgrades work in the other countries where the first-generation device is available, such as Germany, France, and Ireland. Orange, which will carry the iPhone 3G in Austria, Portugal, Switzerland, and France in July, made no mention of an upgrade path in its press release Monday.

The 8GB iPhone has practically disappeared from the U.K. after a price cut last week.

(Credit: CNET Networks)

Price apparently was an object for U.K. iPhone shoppers.

The decision by U.K. carrier O2 to cut the price of the 8GB iPhone prompted shoppers to exhaust stocks of that model at O2's Web site and at Carphone Warehouse, an authorized iPhone reseller. Pocket-Lint confirmed with Carphone Warehouse that the 8GB models are kaput, and O2 told the site that while online stocks of the 8GB model are gone, retail stocks are dwindling fast.

It was only a week ago that O2 cut the price of the 8GB model from 269 British pounds ($533) to 169 British pounds ($335), a move that was seen as a inventory-clearing measure ahead of the expected introduction of a 3G iPhone. Both Carphone Warehouse and O2 told Pocket-Lint they were "reviewing" whether to order more 8GB models from Apple, which is yet another hint we're going to see a new model soon.

Does this mean Apple has a 32GB iPhone planned for the 3G launch, expected to come in June at or around the Worldwide Developers Conference? Perhaps, although it's only been a few months since it upped the capacity to 16GB. At that time, Apple's Greg Joswiak said the company still believed there was demand for a 8GB model, but that stance might have changed to reflect a "bigger is better" mentality.

Steep price cuts to the iPhone in Europe are a sign that carriers overestimated demand for Apple's first smartphone, according to a report.

O2, the iPhone's U.K. carrier, and T-Mobile, its German carrier, both cut the price of the iPhone by a significant margin this week, in a move seen by many as a prelude to the debut of a 3G iPhone within the next couple of months.

Before the 3G iPhone arrives, carriers will need to clear their shelves of the current EDGE model, which will look pedestrian next to the faster model. An O2 representative told our sister site Crave U.K., in an utterly predictable statement, that the price cut was not a prelude to a 3G launch.

Apple CEO Steve Jobs introduces the British press to the iPhone last year.

(Credit: ZDNet U.K.)

The Times Online cites Morgan Stanley analyst Kathryn Huberty as predicting that the carriers will take a loss on the discounted handsets. It seems that strong demand for the iPhone in the U.S. was not replicated in Europe, where consumers are more familiar with sophisticated phones and high-speed cellular networks.

The report also said the 3G iPhone would be "radically different" than the current model, which would be the first time I've heard that contention. Possibilities for the new iPhone, according to the Times Online, include a clamshell model with a larger screen or a slider with a QWERTY keyboard, both of which would indeed be quite a departure from the current design for the iPhone.

Apple may one day have plans to build a clamshell iPhone, as evidenced by a recent patent application, but it seems unlikely that the company would change the style so quickly. Of course, in 2005 Apple dropped its best-selling iPod--the iPod Mini--to introduce the iPod Nano, and that worked out pretty well.

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.

Apple announced its first iPhone deal outside of the U.S. this morning, and might have made its second big mistake in the early days of its iPhone strategy.

The company announced an iPhone partnership Tuesday morning in London with U.K. carrier O2. CEO Steve Jobs made an appearance at the Regent Street Apple store to answer questions from the British press, who were curious as to why Apple decided to introduce the same EDGE phone that's on sale in the U.S. to the U.K. market.

Engadget's live blog reported that Jobs is still concerned about battery life. "The 3G chipsets are real power hogs," Jobs said, adding that he doesn't think 3G chipsets will allow for sufficient battery life until next year. That was the same answer Apple gave earlier this year to questions about the first U.S. iPhone and its dependence on an EDGE cellular network outside of Wi-Fi hotspots.

The two markets are very different, however. The U.K., and really Europe as a whole, are much further along in their deployment of faster 3G cellular networking technology than the U.S. O2 CEO Matthew Key said Tuesday that only about 30 percent of its network will be EDGE-compatible when its iPhone launches, but the carrier has already deployed 3G in many places throughout the U.K. EDGE was meant as a stepping stone for some carriers who weren't ready to roll out full 3G services, but most U.K. carriers went ahead with 3G implementations to replace their older 2G GSM/GPRS networks. (Check out GSMWorld.com if you need help deciphering the alphabet soup that is the cellular industry.)

Apple CEO Steve Jobs unveils the company's U.K. iPhone deal with O2.

(Credit: Crave UK)

It's a little different back in the U.S., where 3G technologies compatible with the base GSM standard used by the iPhone are just getting under way, and EDGE was used to keep people interested during the interim. AT&T, the U.S. iPhone carrier, only offers 3G services in select cities around the country, while the U.K. carriers have a more seamless deployment of 3G technology.

Therefore, Apple's going to have to really captivate U.K. buyers with the design and interface of the iPhone. That's been the device's strong suit since the day Jobs first held it aloft at Macworld, but lots of U.S. iPhone customers had never experienced 3G networking speeds before, and therefore didn't know what they were missing. Most tech-savvy Brits interested in smart phones likely already have a 3G phone, and asking them to step back to EDGE might be a tall order.

Jobs' insistence on a high standard for battery life may pay off in the end, but it could be a tougher go for Apple in the U.K. at first. Apple and O2 are throwing in a subscription to The Cloud's U.K. network of hotspots, since O2 has limited EDGE coverage at launch.

But coming off Apple's miscalculation on the iPhone price cut backlash, you have to wonder if the company is likewise misreading the appeal of the iPhone in the U.K. Sure, it's pretty, but is it too slow? As always, people will vote with their wallets.

Apple will take its keynote show on the road to London next week, with speculation mostly centered on the carriers for a European iPhone.

The company sent out invitations to a Tuesday press conference, but didn't specify the topic. "Mum is no longer the word," was the tagline attached to this invitation, stirring up talk across the pond that Apple is ready to announce its plans for European iPhone sales. The company has previously said that it wants to start selling iPhones in Europe by the end of the year.

Apple could shed more light on its plans for iPhones in Europe next week.

(Credit: CNET Networks)

The Times Online reported that Peter Erskine, CEO of wireless carrier O2, didn't quite confirm that his company was about to start carrying the iPhone. However, he told reporters that Apple's insistence on receiving a share of the carrier revenue from calls made with the iPhone--as Apple does with AT&T--is actually a good thing for the wireless industry, apparently practicing for calls with his shareholders later this year.

Previous reports had indicated that O2 would be the U.K. carrier of the iPhone, but O2 representatives would not comment Thursday to The Times Online. The Financial Times had also reported that Apple had chosen T-Mobile's network in Germany and Orange's network in France, but it's not clear whether Tuesday's event will be just about the Brits.

Apple's forays into Europe will be very interesting, given the quality and quantity of mobile phones in that market. It's likely to produce the first 3G-based iPhone, and it's likely to be a much tougher go for Apple amid stronger competition and choosy shoppers. The company plans to enter the Asian market--also way ahead of the U.S. mobile phone industry--in 2008.

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.