Wednesday, 19 September 2007

Apple wins; consumer loses; O2 ?

There is a lot of commentary around the iPhone in the UK of course after the O2 announcement yesterday. The carrier had long been out as the worst kept secret in a while but the package has caused a stir.

To be honest I am a little surprised that O2 got the deal: it has the worst mobile data tariffs in the market (though Ewan here gives an insight into what is coming), it has the highest prepay base to whom it has never allowed access to the open internet and has already murdered one i-brand in the UK having recently shut down i-mode. These are quite compelling arguments for the prosecution case.

To its credit, O2 has always been the best marketer of services in the market when given a particular proposition to work with (e.g. messaging, music) and I am sure this played well in discussions with Apple.

What I am absolutely convinced of though is that the defining factor in the Apple discussions was not the maturity of the marketing, nor the pricing of data, nor necessarily brand fit nor customer fit but: just money.

Peter Erskine admitted in a Press Conference that there is revenue share back to Apple from the deal though it was ambiguous as to whether this was the service revenue or the handset revenue. If on the service revenue, it is arguably an industry first, though one could imagine it being packaged as a license fee for the software on the device such as that HTC pays to Microsoft for example which is less revolutionary.

The biggest stir in the press has been on the cost of the package with commentary on the £35 per month for 18 months together with the £269 purchase price adding up to £1000 over that period (a bit of poetic license in the tabloid maths there).

That's not the real scandal however. Dig a little deeper.

Apple has held the operators to ransom over being first to market with the iPhone - as it is able to do in a market where such a device might buy 1-1.5% market share in a market where less than that separates the top three. The net result is that it is not O2 that is paying for the Apple revenue share but YOU!

On any of the operators at the moment I can get any device for free on a £35 18 month contract. The £269 you are paying is O2's way of covering the squeeze applied by Apple. That an operator would take a decision which is sub-optimal for the consumer is really no surprise, I am sure however that Apple, the people's champion, will try and distance themselves as much as possible from this link.

As a post-script and a topic for another post: the UK market is completely screwed by the fact that no operator dominates. Even in this case, O2 is not arguably the winner. Forced now to deploy an EDGE network for this purpose and this purpose only is a large price to pay. All the operators should have turned to Apple and said no until a 3G device was available - I would bet that Vodafone did.

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