The Improved iPhone Tackles Europe

Apple's new 3G handset has tantalizing multimedia features, but for the Continent's consumers, the price is still on the high side

by Mark Scott

France's Prime minister Francois Fillon shows his Iphone to French Justice minister Rachida Dati during the weekly session of the Questions to the government, 18 December 2007 at the French National assembly in Paris. MARTIN BUREAU/AFP/Getty Images

Even before Apple's iPhone 3G hits stores across much of Europe on July 11, the highly anticipated handset has already run into a few problems. On July 7, a mad rush of British consumers looking to preorder the phone with network operator O2 (TEF) caused the company's Web site to crash. "We've never seen any mobile device create [such] excitement," says Ronan Dunne, O2's chief executive in Britain.

As consumers prepare for the iPhone launch, Apple (AAPL) and its telecom partners, such as France's Orange (FTE) and Germany's T-Mobile (DT), are banking on similar surges in demand. That would mark a change from the first-generation iPhone, which was only a modest success in the Old World. When it was launched last November (BusinessWeek.com, 11/9/07), Europeans were less enthusiastic than their U.S. counterparts, chiefly because the iPhone's price was high and it used slower, second-generation mobile technology, which put it behind multimedia 3G phones from the likes of Nokia (NOK) and Sony Ericsson.

Now, the iPhone 3G's upgrades (BusinessWeek.com, 6/9/08), including GPS and support for faster connections, could win over European consumers. By lowering the price for an entry-level model with 8 gigabytes of memory to roughly $199, Apple has pitched the phone directly to the Continent's mass market, where consumers are accustomed to heavily subsidized handsets.

Music and Video Appeal

The iPhone 3G's multimedia applications, including access to Apple's iTunes music and video store, also may help drive sales because Europeans have embraced mobile media faster than their U.S. counterparts. "The improvements to the iPhone have put Apple on a more competitive playing field with its rivals," says Tony Cripps, a senior analyst at telecom consultancy Ovum in Britain.

Still, Apple won't waltz away with the market. Nokia and Sony Ericsson remain powerfully entrenched in Europe, and even at its reduced price, the iPhone still comes in at the upper end of the scale. According to British researcher Strategy Analytics, the iPhone will win only 2% of the mobile market in Western Europe by the end of 2008, assuming sales of almost 2 million units.

That would constitute a marked improvement, says Neil Mawston, the director of Strategy Analytics' global wireless practice. But he figures only 20% to 30% of European consumers will even consider buying the iPhone 3G when upgrading to their next phones. "The price is much closer to the mass-market sweet spot, but it's still relatively expensive," he says.

Contract Deals

How costly is the iPhone 3G in Europe? Consider the pricing scheme offered by Germany's T-Mobile. Like most carriers, it is selling the iPhone with an annual contract. For consumers spending $45 a month, the 8GB model will cost roughly $270. But customers willing to fork out $140 a month for mobile service can get an iPhone 3G at a nominal price of $1.50. In France, where the handset debuts on July 17, Orange is offering the 8GB model for $235 on monthly contracts that vary from $77 to $235.

That might not sound too bad to U.S.