Apple's iPhone a tougher sell in Europe?

Although official numbers aren't yet out, the first few weeks of Apple's foray into Europe have been somewhat rockier than its U.S. debut, with smaller crowds, confusing pricing options, and toothless exclusivity for its carriers.

Editor's note: This story initially incorrectly reported the discount that a German iPhone customer could receive by crossing the border and purchasing a unit in France. It's 250 euros.

Apple's learning fairly quickly that Europe is a very different place, especially when it comes to mobile phones.

The iPhone went on sale Wednesday through wireless carrier Orange in France, marking the third European country to carry the phone within its borders. The launch also marked the debut of the third pricing strategy for the iPhone in the three countries: France, Germany, and the United Kingdom.

Apple CEO Steve Jobs introduces the iPhone to the U.K. Crave UK

It appears that at least for a while, the iPhone is going to move more slowly for Apple in Europe. Orange said hopes to sell 100,000 iPhones by the end of 2007, and 400,000 to 500,000 in total by the end of next year, according to several reports Tuesday. Apple wants to sell 10 million iPhones next year in total, after expanding to Asia some time in 2008.

Was Apple blasé about the challenges it faces in Europe? The device's debut in one of the most hotly contested mobile phone markets in the world has been a little chaotic, with last-minute changes to pricing plans that don't appear to have been part of the plan.

Orange, the "exclusive" carrier of the iPhone in France, offers three payment plans. You can purchase an iPhone for 399 euros ($592.78) and sign up for one of the special "Orange for iPhone" plans, which range in price from 49 euros a month to 119 euros a month depending on usage. You can buy an iPhone for 549 euros if you want to use one of Orange's other rate plans. Or, you can buy an iPhone for 649 euros ($964.20) with no plan.

The only company that can sell you an iPhone in France is Orange (Apple doesn't have any stores in France) but it sure as heck isn't going to be the exclusive carrier. French law requires that carriers offer their customers the option of an unlocked phone. That will cost you 100 euros today, but if you're willing to wait six months, you can have it unlocked for free.

So French shoppers who want an unlocked iPhone today will pay the equivalent of $1,112,77, which is actually a significant bargain over what their German neighbors are being asked to pay for a key to other networks. After a legal challenge from rival Vodafone forced its hand, T-Mobile agreed to offer an unlocked iPhone in Germany for the equivalent of $1,478 (at last week's exchange rate).

At least in U.K., Apple's one-phone, one-carrier strategy is still in place. O2 and Apple have yet to release any sales figures, although O2 said it was its "fastest-selling" launch. No matter what, however, any expectations for lines and hoopla similar to what happened stateside on iPhone Day did not materialize in Blighty.

Simply put, Europe is different. Entering the European mobile phone market from the United States is like getting called up to the majors after just a few months in the minors.

One of the many things I've heard from U.S. iPhone owners is that many of them were relatively new to smartphones, especially the idea of getting e-mail and anything more than a real basic stripped-down Web page on their phones. They bought the iPhone because of its user interface, not because it was a data phone, although they quickly grasped what they had at their disposal.

And they didn't care that they'd be locked to AT&T for two years, because two-year wireless contracts are the norm in this country. Maybe that will change in upcoming years following Verizon's announcement earlier this week that it will open up its network, but it will take a long time before all of us are using our phones that way.

Unlocked iPhones are available through official sources in France and Germany, and there's nothing Apple can do about it. CNET Networks

It seems Apple didn't anticipate the difficulties it would have selling the first generation iPhone to European customers and carriers under the same terms and conditions that AT&T and O2 were willing to accept. That situation could very well change next year, when Apple is expected to unveil a 3G phone that would be much more attractive for both consumers and carriers.

But how could Apple possibly have expected that it would be able to sell locked, exclusive iPhones in Europe going into the launch? A German judge quickly imposed an injunction after Vodafone aired its complaints (which were opportunistic, to be sure). But from that swift action it would appear the law regarding locked cell phones wasn't exactly murky, although the carrier said it would attempt to "clarify" the issues.

Likewise, from the pricing discrepancies, it's hard to imagine that the current situation was part of the original plan. A German citizen living on the French border could cross the old Maginot Line and pick up an unlocked iPhone at a 250 euro discount, and then use it with any German carrier, without having to pay any sort of additional import tax. Perhaps the T-Mobile and Orange "exclusive" deals don't transfer as much revenue to Apple as the company gets from AT&T , which is likely the reason behind the steep premium to be paid for an unlocked iPhone.

As always, we have to remind ourselves that this is very early days for Apple in this market. It has very little experience marketing mobile phones and even less experience negotiating tough deals with carriers, who still rule this industry.

Just look at Apple's early dance partners. AT&T's Stan Sigman told attendees at Macworld earlier this year that he signed an exclusive (and expensive revenue-sharing) deal with Apple to distribute and promote the iPhone without having even seen the device. O2 was so eager to be the exclusive iPhone carrier in the U.K. that it allowed Apple to throw in a free subscription to The Cloud--a U.K Wi-Fi hotspot aggregator that offers access to more than 7,000 hot spots--even though that almost guaranteed that iPhone users would do any heavy data action over Wi-Fi and deny O2 a cut of that revenue. Not exactly a bunch of Red Auerbachs, there; Apple must have gotten almost everything it wanted from those two carriers going into the negotiations.

Of course, Apple has one very powerful negotiating chip: a sweet product. I've been to several conferences and conventions this year about the smartphone industry, and Apple's user interface and design prowess has come up in every single one--the CTIA Wireless conference devoted an entire session to it.

The entire wireless industry is trying to figure out what to do about Apple's iPhone. But Apple has to do a better job figuring out how to navigate the complicated minefield that is the international wireless industry. A strategy that works in this country won't necessarily work in other places; just ask Dell , Disney, or the National Football League.

About the author

    Tom Krazit writes about the ever-expanding world of Google, as the most prominent company on the Internet defends its search juggernaut while expanding into nearly anything it thinks possible. He has previously written about Apple, the traditional PC industry, and chip companies. E-mail Tom.

     

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