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iPhone Release Date

The Smart Profits Report: Issue #471
Thursday, November 8, 2007

iPhone Release Date: Apple & O2 Launch The iPhone In The U.K.
By Martin Denholm
Managing Editor, Mt. Vernon Research

Ladies and gentlemen… time to crank up that hype machine again with the latest iPhone release date - It’s iDay in the U.K.

  • Friday, June 29, 2007 - 6:00 PM, United States: The not-so poor huddled masses camp out. The cops patrol the scene. And as the clock strikes six, the stampede begins.
  • Friday, November 9, 2007 - 6:00 PM, United Kingdom: Get ready for a similar situation - except this time, it’s a few thousand miles away, the accents are different, and people have coats on.

A little less than five months after its much-ballyhooed iPhone hit the U.S., Steve Jobs and his fellow Apples are taking their fancy gizmo to Britain.

And when it comes to whipping people into a frenzy, these guys are masters. Sticking with the same marketing strategy that worked well for the U.S. iPhone release date, the company is again building the excitement with a dramatic countdown to 6:00 PM Friday.

“Hey, Britain… the iPhone is groundbreaking. It’s an iPod. It’s got Internet and e-mail. It’s got a pretty cool touchscreen (buttons are so 2006, you know?) Oh, and we also tossed a phone in there, too!” But will Brits be disappointed that it doesn’t make a cup of tea?

Let’s take a look at the iPhone release date, Apple’s U.K. partner, and the firms that aim to challenge the iPhone…

O2: It’s Not Just Oxygen, You Know

Over the past few years, O2 has made rapid progress in the British mobile phone market.

Right now, it’s engaged in a fierce battle with Vodafone, Orange and T-Mobile for market share. It’s a close contest, but O2 recently leapfrogged Orange as the country’s most popular network. It now boasts about 17.78 million subscribers - the largest base in the U.K.

So when Apple went looking for the “British AT&T” (i.e. an exclusive iPhone carrier), it sparked a scramble to secure the lucrative contract. Apple wanted the U.K. badly, but with the uncertainty of a foreign market and all four major mobile operators bunched tightly together, it was far from a clear-cut decision.

So it went on a few dates with them all, even teasing them to the point where they all believed they had a deal with Apple at one stage. Ultimately, though, Apple hooked up with O2 - in particular, Matthew Key, the 44-year old CEO of O2 UK.

Key has made the company No. 1, and the passion and determination with which he pursued the iPhone and sealed the deal. Well, that and dishing a big chunk of change back to Apple…

£269, Please Guv’nor

At £269 (US$560) a pop, the iPhone is actually cheaper than the U.S. version when it launched for $600. But having now discontinued the 4GB version and slashed the price of the 8GB model, an iPhone in the U.S. now costs $399. So if I were in England, I’d wait until Apple lowers the price there, just like it did 11 weeks after the U.S. release date.

As AT&T did, O2 has hired extra staff to cope with iPhone release date demand. Its sole iPhone retail partner, Carphone Warehouse, has also recruited more manpower. This is where the deal could get a little tricky for O2.

Customer contracts run for 18 months and range from £35-55, with unlimited Internet access. But some say that in giving 40% of the revenues back to Apple, as well as paying a portion to Carphone Warehouse (despite having many O2 stores and acquiring The Link last year to boost its presence, O2 had to bring in Carphone Warehouse to aid distribution), Matthew Key overpaid for the iPhone contract. One rival even labels it a “madly money-losing deal,” but Key says the number is off base and dismisses the fears.

Entranced By The “Invention Of The Year?”

Matthew Key is O2 UK’s former CFO, who transformed London’s Millennium Dome from a financial black hole (it received numerous government bailouts totaling well over £1 billion over its first few years) into a viable concert venue, now called “The O2.” This has greatly helped O2’s image, as well as Key’s reputation - underlined when Apple execs recently visited the arena and signed the iPhone deal with O2 just days later.

Key states that the arena deal was actually more challenging than the iPhone because the arena had never worked as a moneymaking concept. That’s not the case for the iPhone. In fact, he’s so confident that he expects about three-quarters of British iPhone customers to transfer from other networks.

But he’s certainly giving a lot back to Apple. A “madly money-losing deal?” Time will tell. O2 has also spent heavily to install the Edge technology on its network for the iPhone. Yes, the company’s network is pretty strong, and no doubt Key is hoping that the iPhone boosts O2’s profile enough to generate not only iPhone sales, but also other O2 products. But company bigwigs had better hope Key’s gushing praise for the iPhone (which Time magazine called the “invention of the year” last week) now translates into profits.

But both O2 and Apple are going to face an immediate challenge…

An iPhone Release Date Hack Attack?

It’s no surprise to me that such a sought-after device has awakened the hackers before the iPhone release date. When the iPhone launched in the U.S., some immediately tried to crack the code and find out exactly what is in the iPhone, how it works, and how to break the exclusive deal with AT&T.

Same thing in Britain. Hackers have pledged to unlock the iPhone from the O2 network “within hours” of its release and make it available to other networks, according to a story in The Guardian.

In an interview with the Daily Telegraph, Key admits this is a concern - and a problem that has already cost Apple millions of dollars in lost revenue, as hackers have twice cracked the U.S. iPhone, meaning about 250,000 owners haven’t signed the exclusive contract with AT&T. If hackers fulfill their promise in the U.K., Apple and O2 could suffer.

The iPhone also faces pressure from competitors…

Will Two “V’s” Equal Victory?

  • Vodafone: As I mentioned in my last iPhone column, having backed away from the iPhone deal, Vodafone quickly found an alternative. One of O2’s biggest rivals has launched MusicStation - a music subscription service for the company’s 17 million British customers.Available on Vodafone handsets (with a new range of “smart phones” from Nokia and Samsung that offer faster web browsing than the iPhone), the service charges £1.99 a week for unlimited music downloads from major record labels. It also offers more flexibility than the iPhone, given that it’s 3G-compatible and available on multiple networks.
  • Verizon: Vodafone’s American subsidiary, Verizon Wireless, is also offering an Apple alternative in the U.S. Trying to grab a slice of the annual $155 billion mobile phone market, it’s launched the Voyager. Made by LG, the first notable feature is that it looks a lot like the iPhone. But in response to criticism that frequent texting and e-mailing can be tricky on the touchscreen iPhone, the Voyager offers both a touchscreen and traditional keypad. This is important, since the Voyager is geared towards those who use messaging frequently. And while it doesn’t have an 8GB memory built in, it does have an 8GB memory card that slides into the phone. This is also important, given that it also targets the fast-growing music and video areas.However, Verizon’s Voyager and Holiday Collection phones aren’t due out until the end of the month. This is pretty sluggish on Verizon’s part, since it will miss a critical part of the holiday season sales period (over Thanksgiving), as well as most of the fourth quarter, which historically sees the heaviest phone activation rates. The company also hasn’t announced prices yet.

As the holiday shopping season gets underway, I plan to have more for you on the retail sector shortly, plus a few other stories I’m working on. So stay tuned.

Best regards,

Martin Denholm

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Today’s Smart Profits Action Center

  • One of the key iPhone features is its touch-sensitive screen. No buttons here - users just guide their finger over the icons and the device responds to the touch. This is one of the fastest-growing, cutting-edge technologies on the market today - poised to rise from $900 million in 2006 to $1.5 billion by 2008. The Xcelerated Profits Report team has tracked the growth of the industry since late 2005. Back then, it positioned readers in Immersion (Nasdaq: IMMR) - an industry leader that owns 600 major patents and has already beaten off Microsoft and Sony when the companies infringed on the patents.
  • While not part of the iPhone, Immersion has licensed its patented technology to Nokia, Samsung and LG, as well as 3M Touch for gaming systems. We think Motorola could be next to sign up. And given that Immersion’s current Chairman of the Board, Jonathan Rubenstein worked for Apple from February 1997 to April 2006 as Senior Vice-President of its iPod division, a future collaboration with Apple is possible. Immersion’s force-feedback, vibrating technology (known as haptics) is also a part of Sony’s PlayStation, which makes the gaming experience more realistic and interactive. The company’s lucrative medical division makes responsive technology that helps train surgeons. And its TouchSense technology is also used in car navigation systems.

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