Rachel Rosmarin and Elizabeth Woyke
When Apple begins selling its iPhone in Europe on Friday, Britons have plenty of reasons not to buy one: It is slower, more expensive and less flexible than other devices available to them.
But Apple’s high-end brand cachet follows it across the pond and analysts and executives expect healthy queues throughout the holiday season for all three sellers in the U.K.: Apple (nasdaq: AAPL - news - people ), Spanish telecom carrier O2 and phone retailer Carphone Warehouse.
O2 Chief Executive Matthew Key predicted that together, the companies will sell 200,000 iPhones by Jan. 1, 2008. Carphone Warehouse has predicted it could move 10,000 iPhones in the first 24 hours after it goes on sale.
While some analysts point to the iPhone’s sluggish EDGE data network as a factor that could turn off U.K. consumers—many phones in Europe are already outfitted with faster 3G connections, which are rare in the U.S.—the iPhone was the most searched for phone in the U.K. on all search engines in the month of October, according to Hitwise analyst Robin Goad.
British phone-buyers are iPhone-curious, at least, and some say they’re certain they’re ready to buy. About 10% of U.K. mobile subscribers surveyed by M:Metrics say they have a “high interest” in buying an iPhone.
But even those intrigued by the iPhone are complaining about its hefty price tag. "Apple is brilliant on interface and usability, but in Europe, phones are so heavily subsidized, there's a perception that they're worth nothing," says Boris Nemsic, chief executive of Telekom Austria Group, a European telecom company with 11 million mobile customers.
That's particularly true in the U.K., where customers are used to getting high-end phones free with carrier contracts. Vodafone (nyse: VOD - news - people ), one of O2's chief rivals, is currently offering dozens of phones free with certain contracts in the U.K., including the N95 from Nokia (nyse: NOK - news - people ) and the BlackBerry Pearl. Vodaphone is even pairing one free Samsung phone with a free iPod nano.
Britons are grousing about what they see as a regional premium in the device’s pricing. It is being sold for £269 ($567) in the U.K. — cheaper than its launch price in the U.S. in June, but 42% more than its current U.S. price of $399, following a September price cut by Apple.
U.K. service plans are also more expensive. The cheapest applicable plan offered by O2 is £35 ($74) a month, compared to $59.99 a month from AT&T. (O2 however, requires only an 18-month contract, compared with 24 months with AT&T.)
In Germany, the phone will cost even more: €399 ($585). Service plans from T-Mobile will range from €49 to €89 a month ($72 to $131) under minimum two-year contracts.
Apple attributes most of the price differences to the European countries' value-added taxes, which, unlike U.S. sales tax, is baked into the price of goods. The rest, it says, comes from higher business costs in Europe, although the company didn't elaborate on what these involve.
O2 has sought to counter cost complaints by touting the phone as a feature-packed device with a top of the line MP3 player and Internet browser, not just a mere cell phone.
IDC analyst Chris Hazelton doesn’t believe that the iPhone's price, use of the EDGE network, or even the fact that Apple is limiting iPhone purchases to two per customer and credit card transactions only, are the biggest iPhone turn-offs for Europeans. Instead, Hazelton believes that Europeans will balk at the lack of choices of carriers for iPhone service. Europeans are accustomed to more carrier flexibility, he argues.
Under French consumer law, for instance, manufacturers are not allowed to tether phones to particular carriers beyond six months. The upshot: More than 60% of French cell phone owners have an “unlocked” phone that can work with any GSM carrier’s services, says Hazelton. “That high number is aided by regulation, and while it's not simply that they have nicer carriers, the carriers and government do want to give users choices.”
Orange, the iPhone's exclusive carrier in France, has said it will offer a premium-priced, unlocked version of the iPhone following its Nov. 29 launch. That could fuel a reverse market for unlocked iPhones. "I wouldn't be surprised if Europeans start exporting these 'officially unlocked' phones to other countries," says Ty Liotta, a senior merchandiser at ThinkGeek.com, an online store that specializes in importing tech-oriented gadgets.
The European familiarity with unlocked phones could also drive continental hackers to tamper with Apple’s lockdown on the iPhone at a proportionately higher rate than Americans have, so that the device can be used on any carrier and also run unsanctioned software. “I think you might see stronger hacker efforts in the U.K., and eventually in Asia, than in the U.S.,” says IDC’s Hazelton.
American hackers have already hacked the iPhone twice, in a practice known as “jailbreaking”: once when Apple released the device to the public in June, then again when Apple pushed out a software update that deactivated tampered-with iPhones. On Friday, Apple is pushing out yet another software update to all iPhones, including those sold in the U.K.
On Nov. 5, Britain’s Guardian newspaper quoted hackers who boasted that they plan to break through Apple’s latest software shackles within hours of the phone’s launch. While it will likely take more than a couple of hours, says Hazelton, “We could see a U.K. versus U.S. hacker race to unlock. Hackers don’t like to be told they can’t do something when they know that they can.”
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