Can the iPhone conquer the European market?

Yesterday in London Apple CEO Steve Jobs launched his iPhone invasion of the European mobile market with the announcement that the much-hyped device will go on sale in the United Kingdom starting Nov. 9. Deals announcing iPhone availability in France and Germany are expected within weeks, if not days.

The terms of the deal with UK carrier O2 sound familiar: it's an exclusive deal for an undisclosed period; Apple gets an undisclosed share of O2's monthly subscriber fees (estimates range from 10 to 40 percent); customers must agree to an 18-month service contract; and customers will pay the full price of the iPhone with no subsidy from O2.


Maybe it's that stiff upper lip, but the British appeared generally unimpressed at becoming the first country other than the United States to enjoy iPhone availability.

The quibbles start with the price. The iPhone will cost £269 in the U.K., which at current exchange rates equal about $536. Jobs blamed the $136 difference on Britain's value-added tax (which accounts for about half the difference) and the higher cost of doing business in the UK.


British mobile customers sounded much like their U.S. counterparts in voicing their displeasure with the 8-gigabyte iPhone's slower 2.5G network technology, O2's relatively high monthly fees (ranging from £35 to £55 per month, or $70 to $110 in Yankee money) and the required 18-month contract. For good measure some added their disappointment over the lack of a new model, such as one with 16 GBs of storage. Apparently few Brits were paying attention in June when U.S. critics leveled almost identical criticism at the iPhone.

Such an unenthusiastic reaction would not appear to bode well for iPhone sales in the U.K. While the device sold 1 million units in 74 days on sale in America, it faces several obstacles in Britain and the rest of Europe that it didn't face in this country.

For example, The New York Times pointed out that many UK mobile users – about 20 percent -- are already using the faster 3G networks and may balk at downgrading to 2.5G just to use the iPhone. European resistance to the high prices and contract restrictions is likely to be stronger since cellular operators there typically offer more flexible terms than those in the U.S. And Apple's powerful brand does not carry quite as much weight in Europe. The iPod, for example, has only 20 percent of the portable music player market in European nations other than Britain, where it has 40 percent. That's considerably lower than the approximately 70 percent share the iPod enjoys in the U.S.

Finally, many potential U.K. iPhone customers have expressed concern about buying too soon in the aftermath of the $200 price reduction in the U.S., not to mention persistent rumors that a 3G version is in development.

One thing Apple has in its favor is that twice as many Brits buy expensive "smart phones" as do their American counterparts, which means they're willing to spend their pounds on a fancy mobile phone. And the iPhone has an unmatched "cool factor," which for many overcomes all shortcomings.

The iPhone's goal, as we frequently are reminded, is just 1 percent of the global market next year. Apple plans a steady rollout of the iPhone throughout Europe and then into Asia from now through 2008. I'm sure Asia will present issues distinct from those in either Europe or the U.S. Apple has taken on perhaps its greatest challenge in seeking to become a global player in the cell phone market. It can succeed, but only by remaining nimble.

The signs so far indicate Jobs realizes competing successfully in the cell phone market will require Apple to adopt new tactics — tactics which have the potential to annoy customers as happened in the recent price reduction fiasco. Responding to questions at the London news conference yesterday, he all but admitted that frequent new models and price cuts will be the norm for the iPhone.

"In technology there's never any guarantees," Jobs told the gathered news media. "There's always new models of things, there's always price reductions on old models. If you wait to buy something, always looking over the horizon, you'll never buy anything."


UPDATE: This morning Apple announced that T-Mobile will be the iPhone carrier in Germany with availability starting Nov. 9, same as in the U.K. I should have said "hours," not days! Apple is wasting no time here.