Apple Inc.’s foray into the global handset industry is a work-in-progress, judging by last week’s events, just as its initial, domestic rollout was marked by adroit tactical shifts.
A sudden avalanche of international market rollouts for the iPhone announced last week appeared to reflect that the company’s original business model, exemplified by its exclusive deal with AT&T Mobility in exchange for an EDGE device and a slice of data revenue, had failed to produce the desired results overseas.
The new deals – terms and timing unknown – nonetheless provided the contours of a new approach on the heels of first-quarter weakness in Apple’s European sales, reflected by a sharp decline in first-quarter shipments that exceeded the industry norm and price cuts at two of three of Apple’s Euro-carriers. Until now, the iPhone maker had largely depended on AT&T Mobility and its own U.S. stores for its unit volumes.
But the company also appeared quick to adapt to a more traditional model for a handset vendor with dreams of a global footprint by using two of the world’s largest operators to spread the device to dozens of new overseas’ markets. The retail details to come from those operators should help determine just how far the American Apple has gone to accommodate global realities.
Retail details
“The news is pretty much confirmation that Apple’s deal has changed from the one it struck with O2 and Orange last year,” said analyst Tero Kuittinen, a RealMoney.com columnist. “This change is just too delicious for details not to leak out. I suspect these new operators got concessions from Apple.”
“The deal(s) give Apple a much-needed shot in the arm at a time when its international strategy seems to be faltering,” said Ben Wood, analyst at CCS Insight. “Apple is moving away from its exclusive approach to distribution.”
Proof of concept
Proof of Apple’s new direction is partial, so far.
Last week, Vodafone reversed itself on its public rejection last year of Apple’s terms and agreed to launch the iPhone in 10 of its markets, including Italy, where Telecom Italia also said last week that it had struck an iPhone deal. The other Vodafone markets are Australia, the Czech Republic, Egypt, Greece, India, New Zealand, Portugal, South Africa and Turkey.
The simple fact that two carriers in Italy will launch the iPhone marked the de facto end to Apple’s exclusive, one carrier-per-country model.
Moves on both sides of border
America Movil – the largest telecom provider in rapidly growing Latin American countries – also said it will launch the device in 16 of its markets, including Mexico, Brazil, Chile, Colombia, Argentina and Caribbean nations.
Nearly lost in the avalanche was Rogers Communications announcement that it would bring the device to its Canadian subscribers “later this year.”
Closer to home, a memo purportedly purloined from AT&T Mobility quickly spread across the Web. The memo said staff would be barred from taking previously unscheduled vacations between June 15 and July 15 – a hint that a 3G iPhone is imminent. That development is likely critical to the new operator deals announced last week; many analysts had surmised that a 3G device would be necessary outside the U.S. to lure savvy consumers.
Subsidies ahead?
Now analysts are watching to see if Apple has agreed to allow its new operator partners to subsidize the device, which would juice sales and ramp up Apple’s end-user base, delivering the unit-volume growth that pleases wireless analysts and Wall Street. Such a move, however, could very well undercut a sense that the iPhone is a premium device worthy of premium prices – a stance that had heartened the industry.
And, if Apple has traded its demand for a slice of iPhone-generated data revenue from operators for a booming base of end users, does that imply that the company’s long-range plans are to feed off recurring content and advertising revenue?
Kuittinen said he would watch to see how far Apple went to accommodate the operators’ concerns.
Will Vodafone and America Movil subsidize the device down to, say, $200, to sting the competition and induce subscribers to consume more data? Will the operators shorten the duration of required service contracts to sweeten the value proposition?
If those changes take place, Apple likely will be more dependent on hardware for revenue and profit in the short run, the analyst said. Once Apple grows its device volumes globally, it may be positioned to take fuller advantage of content and advertising revenue.
“The pricing of the new device is a crucial issue,” Kuittenen said, “especially with Nokia, Motorola and Sony Ericsson missing the market for large display devices. Apple is exploiting that window.”
Wood said he will watch to see whether Apple will renegotiate its current deals with O2 and Orange, which now limit the availability of a 3G iPhone in three of Europe’s four largest markets.
Then, there’s that purported AT&T Mobility memo.
“Clearly there’s pent-up demand in European markets for a 3G iPhone,” said Kuittinen. “But I don’t see pent-up demand for a 3G device in the U.S.”
Thus the Apple saga continued, accompanied by the now-customary, near-dead silence from the vendor, a silence once managed to create buzz and now certain to mark a transition in the vendor’s public storyline.
