T-Mobile, Orange, O2 Snag European iPhone Deals

Apple (Nasdaq: AAPL) may have signed contracts with three mobile phone operators in Europe to carry its popular iPhone. Apple's deals are with T-Mobile in Germany, Orange in France, and O2 in the UK, according to a report in the Financial Times based on unnamed sources who claimed familiarity with the matter.

Furthermore, the contract allegedly requires the operators to give Apple 10 percent of the revenues generated from iPhone services. Apparently, Apple and the mobile operators are keeping the deal under wraps until they can publicly announce it at the IFA trade fair in Berlin later this month.

When asked to confirm the report, Alan Hely, Apple's director of corporate communications for Europe, the Middle East and Africa, told MacNewsWorld "Apple doesn't comment on rumors or speculation," which -- while not surprising as a response for contractual matters -- opens up the possibility that the news may yet be rumors.

However, Apple's own timeline is shortening. Hely noted that Apple's Peter Oppenheimer and Tim Cook, in the July 25 Apple third quarter results conference call with Wall Street analysts, did say Apple's next step is to begin selling the iPhone in Europe next quarter, starting with a few large countries.

Apple's third fiscal quarter ended June 30, 2007, which means the "next" fiscal quarter covers July, August and September.

Exclusive and Game-Changing

Regardless of the rumors surrounding which carriers will provide service for the iPhone in Europe, it's widely expected that carriers will also be exclusive to certain geographies, just like AT&T (NYSE: T) is the exclusive carrier of the iPhone in the U.S.

Notable about Apple's approach is that the company is not following the traditional path of cell phone manufacturers, particularly in distribution methods. Manufacturers typically let the cellular service carriers place their brands on their phones and dictate design and integrated features. Carriers even sometimes force the manufacturers to turn off features that compete with the service providers' own services. In return, the manufacturers receive large-volume orders for their phones. If a cellular service provider orders too many, the phones start hitting the market at reduced rates. If the phone lacks features, it's often offered by the carrier as a free phone with the activation of a new contract. This in turn leads consumers to make buying decisions based on the cost of service rather than the phone.

Apple iPhone customers, however, make their buying choice based primarily on the device itself.

"Apple is reinventing the way we think of the wireless industry," Jeff Kagan, a telecommunications analyst, told MacNewsWorld. "Apple is not following the mold ... and they can do it because they are Apple. Another wireless company couldn't do it, but Apple can because Apple is not a wireless company -- it has a hot brand."

Over the next few years, Kagan said, other companies will likely start driving down the new wireless road Apple has paved.

The 3G Matter

"If Apple is going into the European market with the current iPhone, there is some urgency because the lack of 3G is much more of an issue in the European market than in the U.S. market," Charles Golvin, an industry analyst for Forrester, told MacNewsWorld.

3G-based networks typically deliver data transfer speed close to that of broadband -- much faster than the speed of an EDGE (Enhanced Data Rates for GSM Evolution)-based network, the kind that U.S. iPhones use.

"The window for where an EDGE-based device remains compelling, even for something as desirable as the iPhone, is narrowing," Golvin noted.

Apple is likely to deliver the EDGE-based iPhone in Europe this fall, rather than attempting to deliver a 3G-based iPhone that could introduce additional manufacturing and service issues. "But when it comes to Asia," Golvin noted, "3G is not an option, it's mandatory."

When Apple rolls out 3G-based iPhones in Asia in 2008, the company will introduce upgraded 3G versions in the U.S. at the same or similar premium US$599 price point, Golvin believes. This would let the company reduce the price point of the current iPhone, and follows Apple's history of adding new features to its iPod and retaining the premium value of its most recent version.