All eyes on Apple as iPhone enters Europe

26-11-2007

by Ciara O'Brien

It's been a rollercoaster few months for the iPhone but at last it has hit the European market.

The iPhone could be the most hyped gadget of recent years. When it was merely a whiff of a rumour, Apple fans were frothing at the mouth to get their hands on the mobile phone-enabled iPod. And when Steve Jobs finally announced the device would be available this year, the frenzy of anticipation kicked off, culminating in the iPhone's US launch in June.

Since then, it has been a series of highs and lows for the device. First there was the initial high of the iPhone's US launch, quickly followed by the news that hackers had already found a way to unlock the phone from its preferred networks and add unauthorised applications. The first firmware update for the iPhone effectively "bricked" the hacked devices and rendered them useless. Then there was a price cut, which saw Apple give early adopters of the iPhone a refund of sorts. The latest twist in the tale is that Apple has decided to release a software development kit for the iPhone that will allow for the development of third-party applications.

But hopes are high for the device in the European market. Since its US launch, 1.4 million iPhones have been sold. O2, which won the contract for the device in the UK, is reportedly expecting to sell 200,000 iPhones by 1 January 2008.

The iPhone poses somewhat of a contradiction to the mobile industry. Mobile operators and manufacturers alike are sure to be keenly monitoring its progress in the European market.

"The iPhone is both a threat and an opportunity," said Neil Mawston, analyst with research firm Strategy Analytics. "It is a threat to operators, because it may drive high-ARPU churn to O2 at the expense of rivals such as Three. It is a threat to the established handset vendors, like Sony Ericsson, because it brings a powerful global brand, some cool music services and an attractive handset portfolio. Apple is yet another firm competing for market share.

"However, it is also an opportunity. The iPhone is clearly raising awareness of smartphones and mobile media among the mass-market. It is, in effect, a 'free' advertising campaign for the mobile data industry. A rising tide of Apple hype may eventually lift all ships."

But despite its much-hyped arrival in Europe, the iPhone isn't expected to dominate the UK's mobile phone market. "We forecast Apple will gain a modest 2 percent share of total UK handset shipments in 2008," said Mawston. "High retail pricing, high contract pricing, limited distribution channels and a small product portfolio are restricting its total addressable market in the near-term. The US is, and will remain, Apple's most important market."

There are plenty of reasons why the device could find the European market more difficult than the US. The iPhone, as yet, is not 3G-enabled as we in Europe would know it. Instead, it uses the slower EDGE technology, which although technically a third generation mobile network technology, has sluggish network speeds which mean it is often unofficially considered 2.75G. While this may not have presented much of a challenge in the US, it could hinder the iPhone is Europe where 3G technology is much more widespread. Slow speeds do not make for good web browsing, although the Wi-Fi capability built into the iPhone addresses that limitation in part.

Locking down the iPhone to particular networks for long periods of times, as Apple did in the US, could also hamper the iPhone's march through the mobile market in a region where unlocking your phone from your carrier to use on other networks is common, and in certain countries, such as France, is provided for under consumer law.

However, many will be watching closely to see if Apple's success in the music market will translate into mobile success. Despite increased competition, the iPod has retained its number one spot in the music player market. The brand now carries a certain cachet that others have failed to emulate, despite their best efforts, and the sales figures of more than 100 million are certainly intimidating.

Part of the reason for Apple's dominance in this market is its constant innovation and upgrade of the iPod players -- and of course the iTunes tie-in. There are already rumours of a new iPhone in the works, which could deal with the current device's capacity limitations -- it has at most 8GB of flash memory -- and solve the EDGE versus 3G argument. These rumours could mean that potential customers sit tight and wait for the next version of the iPhone to hit the market.

Irrespective of its drawbacks, Mawston predicts that the iPhone will spark renewed competition in the market. "Apple's entry into the mobile market will spur many competitive reactions. Google has already responded in part by launching Android. Motorola has purchased half of UIQ, in order to gain control of a touchscreen user-interface. And Nokia has launched Ovi, under which it will sell mobile services such as music and ringtones. Others, like Microsoft and Yahoo, will be watching Apple closely next year and we may yet see more mobile counter-moves from them in 2008."