iPhone Says 'Allo to UK

The handset maker also finally revealed the date for the release of the iPhone in the UK, set for Nov. 9, a little more than five months after its U.S. launch.

"We're thrilled to be partnering with O2 to offer our revolutionary iPhone to UK customers," said Steve Jobs, Apple's CEO. "U.S. iPhone customer satisfaction is off the charts, and we can't wait to let UK customers get their hands on it and learn what they think of it."

The company remained silent, however, on details about the iPhone's carrier and release on the European continent. Industry watchers anticipate that Apple will name France Telecom's (NYSE: FTE) Orange and Deutsche Telekom's (NYSE: DT) T-Mobile as exclusive carriers in France and Germany.

A Different Kind of Carrier

Although rumors circulating on the Web have speculated that the cost of doing business with Apple meant O2 had to agree to give the Cupertino, Calif.-based company 40 percent of its revenue from calls and Web browsing, more conservative estimates put the revenue sharing at 10 percent.

However, John Jackson, a Forrester Research analyst, told MacNewsWorld that Apple went with O2 because O2 "has historically charted a different course on handsets," demonstrated by the carrier's decision to entirely separate its handset company in the form of O2 Asia, so users can purchase an O2-branded phone in many Asian/Pacific markets.

The contract probably went to O2 for a number of reasons, David Chamberlain, an InStat analyst told MacNewsWorld, not the least of which is that the carrier also operates in several other countries. However, he added, the choice did come as a surprise.

"They have also shown an interest in non-traditional services and have been very open with mobile Internet services," he continued. "This is not the carrier I expected to be selected, though."

Still Pricey

As it did with its agreement with AT&T (NYSE: T) , Apple has signed a multi-year deal with O2 to sell its latest device. Existing O2 customers will have the option of retaining their existing phone number and upgrading their accounts, while new customers can simply transfer their mobile number to O2.

To use their iPhone, British owners will have to commit to an 18-month contract with a choice between three plans: one at Pounds 35 (US$70.47) per month, another at Pounds 45 ($90.60) and one at Pounds 55 ($110.73). The plans offer 200 to 1,200 minutes, 200 to 500 text messages, visual voice mail, and unlimited anytime, anywhere mobile data usage, including data transfers. Users will also be able to access the Web for free via The Cloud's network of more than 7,500 WiFi hotspots.

The iPhone will be sold at Apple's retail and online stores, O2 stores and also through The Carphone Warehouse's online and retail stores.

More Expensive in UK

It will retail for Pounds 269 ($542). While the price is a bit less than that paid by early adopters in the States, it is more than the current $399 (Pounds 200) that American buyers pay. The price difference is due to a variety of factors including the UK's tax framework and higher costs of trading, according to Jobs.

Despite the grumbling over the high cost of the iPhone, Jackson and Chamberlain said Apple has carried the $500-plus price over to the UK basically because it can.

"The risk they run in dropping the price in the U.S. is that they compromise the consumer's association of value, and thus willingness to pay a premium for a marquee product," Jackson explained. "Motorola's price cutting on the Razr is a valid analog. It got them market share but killed their margins. This is highly unlikely to happen to Apple, as they have an alternative business model established -- making money on activations -- and follow on products such as the [iPod] touch there to catch whatever they can't with the iPhone."

"Why [set the price so high]? Because it can. It's still the forbidden fruit [in the UK], the unattainable," Chamberlain pointed out. "People really will be the first on their block to have the iPhone. However, after those early adopters have theirs, I think a much larger number of people will settle in and wait for the price drop or the non-phone version of this device."

Eating Its Young

The release of the iPod touch in late September will definitely impact iPhone sales in the U.S. and other countries, the analyst said.

"I have absolutely no doubt that the touch will cannibalize phone sales in the USA and abroad," Chamberlain noted. "I assume that if the touch has been released in the UK already that those initial million sales will head to the touch rather than the iPhone.

"Releasing the touch in the U.S. so soon after the iPhone cause big problems for AT&T, but probably not for Apple," he added.

While the iPod touch will surely cannibalize sales of the iPhone among those not keen on having to switch carriers and such, Jackson said, Apple knows this.

"This is about a broad portfolio and brand building strategy, and disrupting traditional distribution models," he continued.