Monday, September 17, 2007

Rivals fear Apple iPhone will bite into profits

The year’s most eagerly awaited gadget, Apple’s iPhone, will finally be unveiled in London tomorrow. It has already been snapped up by more than 1 million Americans.

The touch-screen handset is the size of a credit card and has a music player and internet connection. Its arrival will set the scene for a pre-Christmas price war as Britain’s mobile phone operators fight to keep their customers.

Steve Jobs, the head of Apple, will launch the device at the company’s Regent Street store. He is expected to announce a partner deal with O2, Britain’s biggest mobile operator with 17.8 million customers. Apple is confident that the phone will sell well at full price. To get it, customers will have to sign up with O2.

The prospect of losing customers to a rival during the year’s busiest trading period has triggered panic among other operators and handset makers. In recent weeks they have rushed out new feature-rich phones and services.

Vodafone is offering with its range of Christmas 3G phones a subscription music service that allows users to access 1 million tracks on the move for less than £2 a week. Nokia is introducing an online music service to rival iTunes, Apple’s music catalogue. More new deals and services are expected.

The phone companies are also offering existing customers enticing deals to stay. But David MacQueen, head of mobile media at the business analyst Screen Digest, doubted that the rival products would have much impact. He said: “The iPhone is about style and design. People will walk into a shop and ask for an iPhone in the way they won’t demand a Nokia.”

The device is expected to retail at about £200 and buyers are expected to have to sign up to a two-year contract. Those who ditch phone contracts early will suffer penalty charges from their current providers.

Customers in the US, where it went on sale in June, had been forced to agree to a minimum $60-a-month (about £30) plan with AT&T. Charles Dunstone, of the Carphone Warehouse, said that the iPhone should benefit all phone companies, in encouraging people to use phones for more than just calls and texting.

Operators spent £22.5 billion on 3G licences and have tried desperately to get customers to use phones to download e-mails and music, but 90 per cent of revenues come from calls and texts. Phone companies claim that Apple has already taken the gloss off the O2 deal by slashing the price of the phone in the US by a third, to $399, only 68 days after its launch.

Analysts believe that such a swift price cut undermines the phone’s long-term prospects. It may also encourage British customers to hold back from buying the phone straight away in the hope of making a similar saving.

Some say that the O2 deal has been reduced in worth by the launch of the iPod touch in the US. The new device is an iPhone in all ways bar the ability to make calls.

Ben Wood, of the telecoms research group CCS Insight, said: “The iPod touch risks dampening demand for the iPhone.

“Users will quickly realise they can purchase the iPod touch and get all the benefits of the iPhone plus an additional 8GB of storage at the same price without having to commit to a lengthy contract term.”


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