How Vodafone blew the UK iPhone deal

[cdodkin]

from the UK Guardian Newspaper:

Apple is understood to be demanding that its European mobile phone partners hand over a significant proportion of revenues generated by the iPhone and restrict the content that users can access.
The portion of network revenues demanded by Apple is believed to have been behind Vodafone's decision not to sign up as the exclusive partner for the iPhone in the UK. That contract is understood to have been won by O2 although the mobile phone operator stressed that no deal has yet been signed.

Shares in Vodafone were slightly lower yesterday as investors bemoaned the fact that it will not have the device - which is flying off the shelves in the US. The iPhone is expected to launch in November in the UK through O2, in France with Orange and in Germany with T-Mobile.

Apple is not just making money through sales. It is demanding a slice of the revenues the wireless networks make from usage of the device. It is also restricting content that can be accessed.

In the past, mobile operators have cajoled handset manufacturers into putting buttons on their phones that access the network's own internet portal, where users can download games or buy music. With the iPhone, however, all the power rests with Apple.

Vodafone's shareholders are obviously pissed, as they see a major opportunity has been missed, and handed to 02.

Speculation on this forum that European cell providers 'didn't see the current iPhone as viable' is clearly not true.

Note that no single European carrier is able to sign up the iPhone across Europe, it's going to different carriers on a country by country basis.

Also note, that as with the music industry, Apple are determined to take the power away from the big players, and force them to do things Apple's way.

Must be nice being Apple right now!

 

[Sleeper]

Vodafone's shareholders are obviously pissed, as they see a major opportunity has been missed, and handed to 02.

Given that Vodafone has been criticised for months for its underperforming share price and that the price peaked on speculation that they would carry the iPhone - with that demand fuelled by the hype on projected sales that later proved to be unfounded - I agree that some shareholders are unhappy at Vodafone's decision but it's scarcely solely responsible for the issues Voda have just now. Given that the same shareholders have been unhappy at Vodafone's European revenue streams for months then Wray's comments are unsurprising. Voda's marketing strategy is a bit of a trainwreck at the moment in general.

Here's Voda's 3 month share price graph:

http://uk.finance.yahoo.com/q/bc?s=VOD.L&t=3m&l=on&z=m&q=l&c=

Speculation on this forum that European cell providers 'didn't see the current iPhone as viable' is clearly not true.

Incorrect. They do see it as viable, just not in its current format as this article from the Guardian tech blogs suggests.

http://blogs.guardian.co.uk/technology/archives/2007/07/19/what_would_you_like_from_a_european_iPhone.html

Let's be clear here: If Apple get the product right for the European market then they are in a really strong position to muscle in on the big players' businesss. But they have to get it right for Europe, the American product won't do.

Note that no single European carrier is able to sign up the iPhone across Europe, it's going to different carriers on a country by country basis.

Correct. As mentioned before, the European market is much more fragmented than the American one. That said, they do have partnership agreements. So, for example, I use T-mobile UK in the UK and different networks in Germany and the Czech Republic.

Also note, that as with the music industry, Apple are determined to take the power away from the big players, and force them to do things Apple's way.

Whether they will suceed or not is a different matter. The sales target for 2008 is not indicative that this is their goal though - which is fine. This is a long distance race, not a sprint.

Must be nice being Apple right now!

Indeed. They're performing well.

 

[cdodkin]

What you see is Arun Sarin @ Voda is just trying to save his ass for blowing the iPhone deal.

He starts off with the facts - that he wasn't happy to give Apple the money they wanted per iPhone/Contract.

Then later changes his story to 'lack of 3G' after Apple walk and offer the deal to competitor 02.

I'm sure Arun is feeling the wrath of his shareholders for letting this one slip away.

50% of the iPhone sales in the US have been people swapping carriers - and that means a 'double whammy' for Voda when O2 start shipping units.

Voda will not be getting new iPhone customers, and they'll be loosing high-end customers, with traditionally higher rate plans, to O2.

And the projected sales numbers for the new iPhone are not 'unfounded' - they have Q3 sales in the final 1.5 days of Q3 of 270,000 phones.

That's 3 iPhones per second for each second that the Apple stores were open for businesss.

And those numbers don't even count the sales that went on at AT&T and Apple stores on Sunday, and online at the Apple Website Store.

Given the Street's reaction today to Apple's numbers from yesterday - I bet Arun is having an uncomfortable day at the office, and will be loosing some sleep up to the next shareholder meeting!

He couldn't leverage his 3G network for squat when it came to the iPhone - and now he's locked out for years.

 

[Sleeper]

I disagree. The iPhone numbers are impressive for the first two days but I don't think you can draw the conclusion that the first few days peak sales rates will be maintained. Actually, I seem to recall that iPhone demand had now stabilised so it will be much more interesting to see the Q4 results to see what long term sustainability looks like. I think it'll be good but not world shattering.

However, I think Voda's long term issues are a different issue to the launch of the iPhone - bear in mind that T-mobile (UK) and Orange were also tipped for the iPhone and chose not to meet Apple's demands - and this really is more a matter of commercial judgment as to whether it will be profitable or not.

It's true Voda's CEO will have some hard questions to ask on why he's turned down a potential revenue stream and he's going to have to have some robust answers. This isn't the same as implying that Voda are doomed because of this though.

 

[cdodkin]

I disagree. The iPhone numbers are impressive for the first two days but I don't think you can draw the conclusion that the first few days peak sales rates will be maintained. Actually, I seem to recall that iPhone demand had now stabilised so it will be much more interesting to see the Q4 results to see what long term sustainability looks like. I think it'll be good but not world shattering.

However, I think Voda's long term issues are a different issue to the launch of the iPhone - bear in mind that T-mobile (UK) and Orange were also tipped for the iPhone and chose not to meet Apple's demands - and this really is more a matter of commercial judgment as to whether it will be profitable or not.

It's true Voda's CEO will have some hard questions to ask on why he's turned down a potential revenue stream and he's going to have to have some robust answers. This isn't the same as implying that Voda are doomed because of this though.

Apple are sticking to their market forecast of 1,000,000 iPhones sold buy the end of Q4.

That's an additional 730,000 iPhones in 3 months

That's 11 iPhones per store minute Vs the 3 iPhones per store second they sold in the first day and a half.

So Apple are not predicting that they'll maintain the initial rate of sale - and they are holding to 1,000,000 iPhones by the end of Sept.

It took MS 7 months to sell 1,000,000 Zunes in comparison.

I'm sure Arun will be watching the UK launch closely - it's not going to kill Voda, but it will significantly weaken his personal position if it mirrors the US launch.

 

[Sleeper]

Absolutely - that was the point I was making: We can't draw conclusions from two days of trading in Q3 which is why the Q4 results will be very interesting. Personally I expect Apple to at least meet their Q4 prediction.

As for the Zune... I'm surprised even a million people bought one. I mean what's the point? It's not as good as the iPod, Zen or iRiver products.

As for Arun, well sometimes you win, sometimes you lose. However losing here is a fall on you sword scenario so he'd better hope he's right.