Bloomberg News

IPhone 5 Limits Set to Spark Samsung Discounts in Europe

September 21, 2012

IPhone 5 Restriction Poised to Spark Samsung Discounts in Europe

The restrictions of the iPhone 5 will “push Vodafone and many other European operators harder into the arms of Samsung,” especially as the South Korean company’s popular Galaxy line of phones includes a 4G version that is compatible with their networks, said Robin Bienenstock, a London-based analyst for Sanford C Bernstein. Photographer: SeongJoon Cho/Bloomberg

Apple Inc. (AAPL)’s iPhone 5, which bars customers of some European carriers from accessing the fastest available mobile networks, will prompt those operators to cut prices for handsets from rivals such as Samsung Electronics Co. (005930)

The iPhone 5, which went on sale today, will connect to fourth-generation wireless networks in Europe that run on an 1,800 megahertz band, favoring carriers who do have a network attuned to that frequency, including Germany’s Deutsche Telekom (DTE) AG and its British EE venture with France Telecom SA (FTE). Vodafone Group Plc (VOD) and Telefonica SA (TEF)’s O2 unit will only be able to offer the iPhone 5 on their slower 3G networks.

The restrictions of the iPhone 5 will “push Vodafone and many other European operators harder into the arms of Samsung,” especially as the South Korean company’s popular Galaxy line of phones includes a 4G version that is compatible with their networks, said Robin Bienenstock, a London-based analyst for Sanford C Bernstein.

With the iPhone 5 predicted by analysts to become the fastest selling technology gadget in history, subsidies and promotions will help operators that only offer the device on slower networks to keep customers. Vodafone lost its top spot in the U.K. to O2 after failing to win the exclusive rights to the first iPhone in 2007. The device became Telefonica’s best-selling phone ever and two-thirds of the clients coming to its U.K. network were poached from rivals.

Upgrade Discount

O2 plans to offer iPhone 5 customers with a long-term contract the chance to upgrade to a 4G phone once the operator’s own 4G service is available, according to Telefonica spokesman Simon Lloyd. The carrier will chip in 10 percent of the cost of buying out the contract and pay the taxes, he said.

The new networks, based on long-term evolution, or LTE, 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 4G service is five times faster than is currently available.

Samsung vaulted to the top of the global smartphone market by introducing a variety of Galaxy models using Google Inc. (GOOG)’s Android software. While the iPhone is the most popular smartphone, Android is more widely used, showing up in devices from Samsung to HTC Corp. (2498)

Galaxy S III

Samsung said this month that sales of its latest Galaxy S III, which has a bigger screen than the iPhone 5 and also works with 4G networks based on different frequencies, topped 20 million units. Nokia Oyj (NOK1V) unveiled a lineup of Lumia models this month with the most recent Microsoft Corp. Windows Phone software, aiming to win back market share with better camera and mapping technology.

Customers in Sydney, Tokyo, Paris and New York lined up for the iPhone 5 today. Queues of more than 1,000 people gathered in Frankfurt and London this morning as loyal Apple customers raced to get the latest device. Piper Jaffray Cos analyst Gene Munster predicts that 10 million iPhone 5 may be sold this weekend.

Shares of Samsung climbed 1.2 percent to close at 1,302,000 won in Seoul. In German trading, Apple slipped 0.2 percent to the equivalent of $701.10 as of 10:56 a.m. in Frankfurt. Nokia dropped 0.6 percent to 2.19 euros on the Helsinki exchange.

Subsidy Question

“The question for operators now becomes in the near term - - how sticky is Apple’s software versus the better speeds of the Samsung Galaxy’s, and how much subsidy will be put behind this,” Bienenstock said.

Vodafone and O2 offer 4G devices from Samsung, LG Electronics Inc. (066570) and HTC that are able to run on the operator’s 4G networks based on frequencies other than the 1,800 MHz band.

In the U.K., EE said Sept. 11 it will start the service and give pricing details in coming weeks. The U.K. auction of 800 MHz and 2,600 MHz frequencies is set to begin later this year, allowing a general rollout of faster data services in 2013, regulator Ofcom has said.

Vodafone has opposed EE’s move to start 4G services ahead of an upcoming auction of frequencies, saying it was “shocked” by Ofcom’s approval of the service, which creates a “competitive distortion.”

“We’ll have to work a bit harder and we’ll have to work with other devices,” Vodafone Chief Financial Officer Andy Halford said last week. “We’ll be looking at the pricing and competitiveness of those devices.”

To be sure, EE’s LTE network isn’t widely available -- rolling out in 16 British cities by Christmas -- and as the first entrant in the U.K., the burden will fall on them to introduce customers to the new technology and market its benefits, said Gyanee Dewnarain, a London-based analyst at researcher Gartner Inc. (IT)

“They’ll have to do the work to educate the mass market,” Dewnarain said. “The mass market doesn’t have a clue what LTE is.” By the time they do, Vodafone may be ready to offer its own service, she said.

To contact the reporters on this story: Amy Thomson in London at athomson6@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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