Apple forced into iPhone contracts U-turn

in iPhone edited January 2014
Article by Jonathan Richards from the Times Online

Italy has become the first country to sell the iPhone on a non-exclusive basis, suggesting that Apple's strategy of tying its device to one network in each territory may be unravelling.

This morning Vodafone and Telecom Italia announced that they had both won contracts to bring the iPhone to Italy later in the year - ending a year-long stretch in which only one operator had the right to the iPhone in each country.

Vodafone also said it had won the right to distribute the device in nine other countries, including Australia, New Zealand, and India - a mobile market which is growing rapidly, but where the majority of customers are pre-pay rather than contract - a situation that does not suit Apple's revenue model.

Apple now faces the prospect that operators in other countries may revolt against its onerous terms, which are understood to involve the network sharing 10 per cent of revenues in return for the right distribute the iPhone exclusively for a two-year period.

"This is definitely a sign Apple is capitulating," Will Draper, an analyst at Execution, said. "The initial model was that Apple would give the iPhone to a network on an exclusive basis, but in Europe, where you have the likes of Nokia and Sony Ericsson selling sophisticated 3G devices, the iPhone simply isn't seen as such a premium product."

Apple is expected to announce a faster, 3G version of the iPhone next month.

Apple is understood to have shipped 600,000 iPhones to the three European operators which have won contracts to distribute the device - O2 in the UK, Orange in France, and T-Mobile in Germany - but so far demand has been disappointing, analysts said.

Last month, O2 was forced to cut the price of the device by more than a third - from £269 to £169 and T-Mobile made an even more drastic from ?399 (£319) to ?99 to get rid of unsold inventory.

The disappointing demand for the iPhone in Europe could be due to the device lacking the faster capabilities of 3G devices, analysts said. In the US, where 3G networks were less developed and where the device has sold well, the lack of 3G had been less of an issue.

"Apple is realising that it should be making the iPhone as widespread as possible - Vodafone having taken the view in Italy that it is not willing to share revenues for what will likely be a mediocre product," Mr Draper said.

The deal - which involves Vodafone distributing the iPhone in several other European countries, including the Czech Republic, Portugal, Egypt, Greece and Turkey - was not as sigificant for Vodafone as gaining the contract in one of the larger European markets such as Germany or the UK, he said.
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