O2 wins Apple iPhone deal - at a hefty price
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Mobile operator O2 is preparing to unveil Apple's much anticipated iPhone in the UK tomorrow. But serious questions are being raised in the City about how much ground it has had to give away to Apple in order to clinch the deal.
The UK's largest mobile operator came from behind at the last minute to seal an agreement with Steve Jobs, Apple's chief executive, to market the iPhone in the UK, but one other operator described the deal as "madly money-losing".
O2 is understood to have agreed a margin on the retail price - to be confirmed tomorrow - but will return to Apple as much as 40% of any revenues it makes from customers' use of the device.
The price of the combined phone and iPod can be changed by Apple at any time, as happened recently in the US. Out of O2's share also comes a commission and further revenue share with Carphone Warehouse, which is understood to have secured the right to be the sole independent retailer of the device on behalf of O2.
Carphone appears to have been drafted in because of Apple's fears that O2 did not have a big enough presence in the UK even with its sizeable store portfolio which was enlarged by last year's acquisition of The Link stores. The rush to secure an exclusive iPhone deal has also been called into question by the arrival of the iPod Touch device, which does everything the iPhone does except make phone calls. This was not expected by any of the operators involved in negotiations with Apple over the phone.
The current generation iPhone cannot receive music from the iTunes store over the air and is expected to appeal mostly to existing iPod users who want to upgrade their device and have been "wowed" by the touch screen on the iPhone. The iPod Touch, however, has that touch screen and twice the capacity of the iPhone. It can also connect to the internet using short-range Wi-Fi technology.
Throughout discussions over marketing the iPhone in Europe, Apple has played off the UK's four main networks - O2, Orange, T-Mobile and Vodafone - against each other. All of them, at one stage, believed they had an exclusive deal for the British market.
As a result, many mobile phone company executives are unimpressed with the way the Californian computer group has conducted businesses this side of the Atlantic, although similar tactics were used in the US.
Vodafone is understood to have dropped out of the race relatively early as Apple pursued a "divide and conquer" strategy and decided against having just one operator stock the phone across the three initial territories of France, Germany and the UK.
The plan is believed to have switched to T-Mobile providing the device in Germany, which will be confirmed on Wednesday, and Orange in France, to be announced on Thursday. In the UK, the idea initially was for both operators to share the device because the British market is much more fragmented than in either continental country.
