T-Mobile to Retain iPhone Exclusivity in Germany

A German court has ruled that T-Mobile Deutschland does not have to surrender its monopoly over iPhone sales in Germany by unlocking the Apple-developed handset. This reverses an earlier court injunction, brought by T-Mobile’s rival, Vodafone, in November that required T-Mobile Deutschland to sell unlocked iPhones for use on other mobile networks (see Germany – Europe: 22 November 2007: German Court Ruling Triggers Major Review for iPhone Sales across Europe).

Following the earlier ruling, T-Mobile Deutschland had started selling unlocked iPhones for 999 euro (US$1,468.04), compared to the 399 euro it charges for an iPhone handset in combination with a contract (see Germany: 20 September 2007: Apple Teams with T-Mobile to Sell iPhone in Germany). T-Mobile Deutschland has said that it now will stop selling the unlocked version, but will unlock its existing customers’ iPhones when their current contracts expire.

Outlook and Implications

• Implications for Europe: The German court’s decision to overrule the ban on T-Mobile’s exclusivity in Germany was unsurprisingly welcomed by T-Mobile. Apple will also be relieved by the overturning of the ruling, which could have spelt trouble in other European markets where it has exclusive deals with operators. True, Orange, which holds exclusive rights in France, has been required to sell unlocked iPhones in that country, but the operator sells these at a significant premium to those sold as part of a bundled service deal (see France: 29 November 2007: iPhone Debuts in France).
• Uncertainty Remains: Apple’s strategy of exclusive deals with operators has also faced legal challenges in the United States (see United States: 12 October 2007: iPhone Suits Target Handset Locking Practices). Further legal challenges to exclusive deals can be expected, both in North America and Europe. Other uncertainties remain. The vendor’s decision to slash iPhone prices in the United States by a third has upset some customers who paid the higher fee. In comparison to other music- and multimedia-centric handsets on the market, the iPhone is expensive and operates only on 2.75G EDGE and patchy Wi-Fi networks, offering lower surfing speeds than the 3G handsets offered by most operators. While a 3G-enabled iPhone is set to become available in 2008 (see World: 30 November 2007: AT&T CEO Reveals iPhone to Go 3G in 2008), this is tardy in the context of increasing 3.5G (HSDPA) availability. Apple’s coyness about its revenue-sharing arrangements with operators has also added to the uncertainty over whether the game is worth the candle for these operators.
• Proof in the Pudding: Apple did not set itself lofty targets for iPhone sales, so the news that it beat it sales expectations in its first quarter of sales should not be surprising (see United States: 23 October 2007: Apple Reports Results, Exceeds iPhone Targets). The iPhone certainly pushed AT&T’s mobile net additions in its third quarter. Orange France yesterday said that it had sold 30,000 iPhones in the five days since launch, while noting that 48% of sales led to new subscriptions and 80% of customers buying the handset had also signed up to a “Orange for iPhone" contract at the same time. This data does not provide conclusive evidence of an iPhone boom in Europe and North America, but it is an encouraging sign for operators. Why are consumers willing to pay relatively high prices for the iPhones? Apple is no doubt benefiting from the early adoption by technophiles. However, a wider range of consumers own and enjoy the overall experience: the easy functionality applied not only to selecting tunes on their iPod, but now also contacts, websites and other content on their iPhones. Apple’s success with the iPod and the long-held awareness that it was working on a mobile handset has galvanised the industry into greater focus on ease of use. The company itself has said that it will release a software development kit (SDK) for third-party developers (see United States: 18 October 2007: Apple Promises an SDK to Join iPhone Third-Party Application Movement). Other players are also increasingly taking the “open” route to enhancing the user’s mobile data experience (see United States: 6 November 2007: Sprint Joins Open Handset Alliance) and ultimately generating greater revenues from the mobile internet.