Taken from the mobiletoday website

T-Mobile and Orange will get the iPhone in the coming weeks

Apple will shake up the industry in the second half of 2009 by breaking O2’s exclusivity on the iPhone, with the expectation that it will add Orange and T-Mobile as UK distribution partners.

The move, set for as early as September, will have repercussions for all the networks, the established manufacturers and even in retail.

Despite essentially having just one device, Apple will start to closely resemble a conventional manufacturer with its distribution strategy.

Apple reached over one million UK sales by the end of February 2009, and it’s now considering how to grow in its next phase.

The 3GS version is a small but significant iteration on its predecessor. With the same screen size to support applications that fit the original, the developments are on experience, rather than looks or a new price bracket.

The decision has also led to Apple enjoying better terms with component and chip suppliers as it looks to buy on a bigger scale.

IPhone applications have attracted one billion downloads in the last year, and the manufacturer’s first quarter results showed income from networks and other associated services rose to $1.52bn (£1.03bn), compared with $378m (£258m) one year earlier.

The iPhone sold more than 3.7 million units worldwide during the period – a 123% increase on the same three months in 2008.

In January, Apple announced it had sold 4.4 million iPhones during the final quarter of 2008 – an 88% surge on the previous year.

But many consumers in the UK have so far been deterred by what is perceived to be prohibitive pricing from O2, leading many to import iPhones and unlock them for use with other UK operators.

Some analysts believe there is a proportional increase with the addition of new networks. Neil Mawston at Strategy Analytics says: ‘If you triple the operators you could triple share. In Q1 2009 with O2, Apple’s share was 2% of the overall market. Based on that, it could start to close in on LG with 5%.’

Apple’s strategy in other countries
In February 2009, Orange owner France Telecom lost a court case to preserve its exclusive contract for French sales of the iPhone.

The Paris court said in a ruling that contracts limiting sales of iPhones to a single mobile phone company were a ‘restraint on competition’, which warranted immediate measures.

France Telecom, whose Orange unit is the country’s biggest wireless operator, sold more than 600,000 iPhones since its local debut in November 2007. Orange spent around €100m (£86m) on marketing in France.

The regulator opened its probe after France’s third biggest mobile phone company, Bouygues, complained about the deal in September 2008. Bouygues joined Conseil and SFR, the number two mobile provider, in opposing France Telecom’s appeal.

A German court in 2007 upheld Deutsche Telekom AG’s right to block iPhone buyers from using the handset on other networks. AT&T is the exclusive wireless service provider for the iPhone in America.

Despite a spat with Apple over the UK market, Vodafone won the contract to sell the Apple iPhone 3G in 10 countries in June 2008.

In July 2008, handsets became available on Vodafone in Austria, Italy, New Zealand and Portugal, and later on in the year in the Czech Republic, Egypt, Greece, India, South Africa and Turkey.

Meanwhile, Orange announced it had won 3G iPhone distribution deals in Europe, the Middle East and Africa. Orange launched the device in July 2008 in France, Portugal, Austria and Switzerland.

T-Mobile has deals in Germany, Austria, Netherlands, Czech Republic, Poland, Slovakia, Croatia and Hungary.

What it means for…

Apple’s rival manufacturers
The most immediate impact on Nokia, RIM, Samsung, Sony Ericsson, LG
and HTC will be that their share of sales in T-Mobile and Orange instantly decline. Both networks will tell Apple’s rivals they have less acquisition budget to spend on phones from other manufacturers.

By contrast, O2 could wriggle out of its volume commitments for the iPhone and start pushing other manufacturers, to demonstrate its power to Apple.

The move will force Apple’s rivals to concentrate their efforts on vodafone, and to a lesser extent 3, with the hope that Vodafone has a resurgence in the market that they can then piggyback.

Overall, extended distribution of the iPhone in the UK will have a negative impact on Apple’s manufacturer rivals.

T-Mobile and Orange
One frequently debated issue is how much inertia there is from consumers to leave a network. Or to put it another way, how much loyalty exists towards an operator.

That will be better answered once Orange and T-Mobile start offering the iPhone. Have there been large numbers of consumers who wanted the device over the last two years, but didn’t want to leave T-Mobile or Orange? Many consumers who may have wanted the iPhone were perhaps reluctant to surrender value deals with either network, struggling to justify O2’s comparatively expensive iPhone tariffs. Answers will emerge with the level of sales at both networks.

In the US, prices have already been reduced by 70% and it is likely T-Mobile and Orange have negotiated terms that will allow them to do the same.

The scale of the iPhone effect for Orange and T-Mobile will not be on a par with that enjoyed by O2 when it first obtained the iPhone exclusively in 2007. Nonetheless, T-Mobile and Orange will experience an uplift when the iPhone is made available on their networks.

Plainly, it will be most effective as a retention tool. Store and call centre staff have been frustrated over the last two years in the face of consumers requesting PAC numbers to port onto O2 for the iPhone. Even the most well executed ‘iPhone countering’ retention tactics have had limited success, with T-Mobile’s HTC G1 and Orange’s HTC Touch Diamond struggling to stem the flow.

Orange has held a strong record of exclusive devices over the last two years, with the HTC Hero an upcoming example. Yet Orange will now need to submit new sales forecasts.

Having the iPhone will come as a great relief to both networks, which have been struggling to stem the tide of customers hitherto deserting for the device. Financially, it will mean some initial pain in the form of commissions and handset subsidies, with a likely immediate negative impact on costs and profits, but customer numbers should improve, with revenue picking up in later quarters. T-Mobile desperately needs a lift to arrest the decline in its financial performance in recent years.

O2
The iPhone has been central to O2’s industry leading financial power in the UK over the last two years.

Its acquisition budget has been heavily skewed to iPhone customers, to the extent that it has effectively chosen to make other expensive handsets unattractive on its network.

O2 will lose its point of difference. The iPhone has seemed more of a monopoly than an exclusive in the UK market, given the breadth of its appeal.

The sales rate for iPhones on O2 will inevitably tumble as two further networks start selling the device. What will be most fascinating is how aggressively Orange and T-Mobile price their deals in comparison to O2, and how O2 responds. Will it engage in an iPhone war?

Any price changes on the device will infuriate O2’s existing iPhone customer base, who will expect a price reduction either immediately, or will frustratingly sit it out until they can switch to another network or receive any improved tariffs O2 starts offering.

O2 may also have to revise its handset strategy, although the arrival of the much anticipated Palm Pre in the coming months will still give it a point of difference, leaving it less exposed.

Vodafone and 3
Vodafone was close to securing the UK iPhone distribution deal two years ago but negotiations broke down at a very late stage, with Vodafone baulking at the commercial terms, especially for what it deemed a 2G product at the time.

It was the leading operator, but O2 was closing in. Since then, O2 has accelerated past, and Vodafone could be forgiven for regretting its hard line stance with Apple.

It has since tried a number of iPhone alternative strategies – MusicStation, BlackBerry Storm and most recently, the HTC Magic.

Vodafone is unlikely to be affected by Orange and T-Mobile selling the iPhone anymore than it has been over the last two years. It has lost customers to O2 because of the iPhone, but the attraction of cheaper prices on the device could simply lead to greater numbers switching.

However, Vodafone will have a clearer run on other handsets, especially new flagship Android devices on Samsung and HTC. It can also collaborate with manufacturers keen to challenge Apple’s growing power in the handset market.

3 is known to have thousands of customers who have unlocked iPhones and inserted a 3 Sim card, lured by the operator’s attractive tariffs and the economic advantage of unlocking the device and using it on 3, compared with O2’s 18 month or two year deals.

Phones 4u
Additional networks with the iPhone could open the door for Phones 4u. Orange is known to be close to the retailer, although T-Mobile is completely non-existent.

By adding T-Mobile and Orange, Apple will have demonstrated a relaxation of its controlled distribution position.

Phones 4u, through Orange, will make a strong case that its target market is particularly suited to iPhones. Sources at all levels of the retailer have privately declared that it has suffered by not having the device over the last two years.