What can the UK iPhone show Australia?

With the iPhone freshly launched in Europe, only now are we starting to get an idea of the true extent of Apple's power over the mobile operators.
Written by Jo Best, Contributor

With the iPhone freshly launched in Europe, only now are we starting to get an idea of the true extent of Apple's power over the mobile operators.

Apple's deal with the US networks raised eyebrows to stratospheric levels when the iPhone first launched in June, with the news that AT&T will apparently provide Apple with some of the service revenues that it makes from its iPhone subscribers.

If newspaper reports out of England are to be believed, O2 -- the operator that will carry the device in the country -- is cutting Apple a similar sweet deal, offering to cough up 40 percent of the money it earns from iPhone users.

Impressive, especially when O2 is only offering the iPhone with meaty 35 to 55 pound a month deals.

The idea that a handset manufacturer should receive cash from a mobile operator in this way is unheard of -- Apple is the first to strike such a bargain and, such is its clout, it is likely to remain in a club of one for sometime.

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What does O2 get for its trouble and its outlay? If the US model can be replicated in the UK, then a fair few units shifted: the iPhone after all, has already sold a million in its home market, according to some reports.

What else can the iPhone deliver? 18 month contracts. Again, if O2 can replicate the AT&T model, it will have managed a coup. Currently, most contracts in the UK last 12 months, with operators trying to edge more and more users onto longer, 18 month deals.

Cutting down "churn" -- when a customer switches from one network to another -- is top of the operators' hit-list right now and locking even more users on to 18 month contracts would mean O2 execs high-fiving themselves silly.

And, of course, the kudos, the acres of headlines, blog posts, and fanboy worship that goes along with winning the most talked about mobile of the year.

Anything else? Potentially higher data revenues. Among its peers, O2 is having the best luck in managing to boost non-SMS data revenues. Perhaps, with a device that is set up to promote Web browsing and music downloads, Apple can help O2 encourage more users to spend money on mobile services other than talk and text.

But what doesn't it get? It doesn't get a 3G iPhone. Despite the overwhelming prevalence of 3G in the continent, Apple is selling O2 the EDGE version. O2 has no real significant EDGE network of its own, so it will be faced with the prospect of building one, or a network sharing deal with Orange, the only operator in the country with such infrastructure.

3G phones are the rule, not the exception in Europe, so iPhone users fond of Internet on their mobiles will be experiencing a much slower, more laborious surf then they're used to: hardly conducive to consuming that all important data.

O2 will also face the interesting concept of selling the iPhone now the iPod Touch -- the iPhone without the phone as it has been called -- has been launched. Gadget fans can now get their hands on all the functionality and cool factor of the device, without the contract handcuffs and crappy connectivity.

It will also need to persuade the iPhone buying public to shell out for a non-3G iPhone after revealing a 3G-equipped one is in the way. While it's good news for Aussies -- the 3G iPhone is scheduled for next year, when the device is set to launch over here -- it's one more excuse for shoppers in the UK to delay laying down the cash.

O2 will also need to persuade UK customers that they will not only want to sign up for a longer than average contract but that they also want to pay 269 pounds for the device -- in a market where operators subsidise devices so customers don't pay a penny.

Handsets are normally given away 'free' in the UK, with the operator bearing the cost. If Apple can get users used to paying for their mobiles, both the network and handset makers will thank them -- but will consumers and their money be so easily parted?

Potentially, the iPhone will be a harder sell in the UK than in the US. By watching the UK, we may get some idea of how the iPhone will fare when it arrives on these shores.

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