Bloomberg News

Vodafone, Telefonica Miss Out on Fast Version of IPhone 5

September 13, 2012

Vodafone Group Plc (VOD) and Telefonica SA (TEF) will be excluded from offering the fastest Internet access to users of Apple Inc. (AAPL:US)’s iPhone 5 in the U.K. and Germany, handing Deutsche Telekom AG (DTE) the chance to win over customers.

The iPhone 5, unveiled yesterday, will connect to fourth- generation wireless networks in Europe that run on a 1,800 MHz band. Deutsche Telekom is currently rolling out such a network in German cities, while its British venture with France Telecom SA (FTE), called EE, plans to deploy the service to more than a third of the U.K. population by the end of the year.

Other European operators, including Vodafone, Telefonica’s O2 business and Vivendi SA’s SFR unit, will only be able to offer the iPhone 5 on the current slower 3G network. The device is predicted by analysts to become the fastest selling technology gadget in history. Vodafone lost its top spot in the U.K. to O2 after failing to win the exclusive rights to the first iPhone which was unveiled in 2007.

“Having the iPhone with LTE will give an enormous push in sales and market share to EE and Deutsche Telekom,” said Alexandre Iatrides, an analyst at Oddo & Cie. in Paris. “Customers want LTE on their iPhones and they will go to the operators that have it. EE and Deutsche Telekom should make the most of this opportunity before a new version of the iPhone may endanger their competitive advantage.”

‘Frankly Shocked’

The new networks, based on long-term evolution technology, allow users to watch videos, stream music or perform other data- intensive tasks at a faster speed. EE, the largest mobile-phone operator in the U.K., said this week that the new service is five times faster than is currently available.

Deutsche Telekom rose 0.3 percent to 9.74 euros in Frankfurt as of 2:12 p.m. while Vodafone gained 1.6 percent to 176.70 pence in London, Telefoncia dropped 0.9 percent to 11.32 euros in Madrid and France Telecom fell 1.8 percent to 10.59 euros in Paris.

Vodafone has opposed EE’s move to start 4G services in the U.K. ahead of an upcoming auction of frequencies, saying it was “frankly shocked” by local regulator Ofcom’s approval of the service. The decision created a “competitive distortion,” Vodafone said in August.

Apple Chief Executive Officer Tim Cook took the stage in San Francisco yesterday to tout iPhone 5, which boasts a bigger screen and has a chip that handles tasks more quickly than past versions. Apple is betting that the device is loaded with enough features to set it apart in a market swiftly crowding with phones by Nokia Oyj, Microsoft Corp. and Samsung Electronics Co.

Head Start

In Germany, Vodafone and O2 offer devices from Samsung, LG Electronics Inc. and HTC Corp. that run on their local 4G networks.

Apple’s decision to restrict the compatibility of the iPhone 5 with certain European LTE networks allows Deutsche Telekom to get a head start in the battle for customers that want faster internet access, just as Germany’s former state monopoly begins to deploy 4G services in cities after starting in rural areas.

Carl Howe, an analyst at Boston-based Yankee Group, is predicting that Apple will sell more than 10 million of the new handset by month’s end, surpassing the record set last year by the predecessor device, the iPhone 4S.

Getting Lucky

Apple doesn’t prefer one operator over another, said Markus Goebel, a spokesman for O2 Germany in Munich. “Apple wants to maximize LTE reach for its iPhone and Deutsche Telekom got lucky that the 1,800 MHz frequency is also used by operators in Asia,” he said.

O2 and Vodafone will still offer the iPhone 5 on their current 3G networks, according to Goebel and Vodafone Germany spokesman Kuzey Esener.

Vodafone’s Italian unit, which is deploying equipment needed for a faster network on its existing airwaves, will be able to offer 4G services “quite quickly,” Morgan Stanley analysts including Nick Delfas said today in a note. A Vodafone spokesman declined to comment.

The iPhone 5 will be available for orders on Sept. 14 and lands on store shelves Sept. 21 in the U.S., Australia, Canada, France, Germany, Hong Kong, Japan, Singapore and the U.K. It goes on sale in another 22 countries on Sept. 28.

To contact the reporters on this story: Joseph de Weck in Frankfurt at jdeweck@bloomberg.net; Jonathan Browning in London at jbrowning9@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net


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