Apple's iPhone can only help rivals in Europe

HELSINKI (Reuters) - Major handset vendors have much more to gain than to lose from the buzz Apple Inc’s coveted iPhone will create when it arrives in European stores for the key shopping season ahead of Christmas.

An iPhone is seen inside the Apple Store in New York, June 29, 2007. Major handset vendors have much more to gain than to lose from the buzz Apple's coveted iPhone will create when it arrives in European stores for the key shopping season ahead of Christmas. REUTERS/Shannon Stapleton

As Britain, Germany and France await news this week on which telecom operators will be awarded contracts to sell the iPhone in Europe’s major markets, Apple’s rivals reckon they will profit either way.

For one thing the iPhone will have a tough time justifying its price tag in Europe, expected to be around 399 euros ($553), in a market where almost all but the most basic pay-as-you-go phones are given away for free with operator contracts.

Sales of the iPhone, which has been available in the United States since the end of June, do not approach those of its competitors there -- Apple has sold a million iPhones so far, about the amount Nokia sells every day.

At the same time the iPhone marketing campaign has raised awareness about extra features in phones -- which can only benefit the likes of Nokia, Sony Ericsson and Samsung Electronics, who have strong portfolios of music focused phones.

“The iPhone is hugely positive for the handset market,” said CCS analyst Ben Wood, adding that those operators who do not get an iPhone contract would look for alternative products to keep their clients.

“Who’s got the problem? Operators. Who gains? handset makers. For every one operator that gets iPhone -- there are three to four who don’t,” he added.

In Britain, Vodafone has already unveiled a range of new handsets and services for the Christmas period including an exclusive music service offering unlimited tracks in preparation for the iPhone’s arrival.

Speculation has swirled for months over which European telecom operators will sell the iPhone, which combines the popular iPod music player and a Web browser.

In Germany, a source told Reuters last week it would be sold through Deutsche Telekom’s retail outlets at an initial price of 399 euros.

Apple is expected to hand a deal to Spanish Telefonica’s O2 UK unit, and France Telecom’s Orange unit is expected to win a French deal, analysts say, though the companies have maintained strict silence about any deal.

Apple signed up top U.S. telecoms operator AT&T Inc. in an exclusive deal for at least two years to sell the phone in the United States. But earlier this month, Apple cut the U.S. price for the iPhone to $399 from $599.

Analysts said Apple is likely to benefit from its strong brand and dedicated followers when starting European sales, but a limited offering and signing deals with just one telecom operator per country would put a lid on its sales hopes.

“You need a brand, a product and a distribution to get market share. They got the brand, but the product is limited and distribution is rather limited,” said Neil Mawston from Strategy Analytics.

“The impact would not be meaningful largely because of the price... it looks like the product price is not subsidized,” said Nomura analyst Richard Windsor.

At a price of around 399 euros, the iPhone faces competition from operators which offer models such as Nokia’s N95 -- which has faster Internet connection via 3G, a 5-megapixel camera and a GPS positioning chip -- for free on longer contracts.

Analysts pointed also to the difficulty of typing SMS messages on a touch screen, long contracts, built-in batteries and 3G capability.

“We don’t see enormous impact as 3G is becoming a must in smartphones. There are no meaningful EDGE networks in Europe,” said Nomura’s Windsor.

But not all analysts agreed.

“It doesn’t actually matter, people buy it as a status symbol,” said CCS’s Ben Wood.