Sunday, 3 February 2008

Hate to say “I told you so”... alright...

In December last year, Mac Predictions reported on lower than expected demand for iPhone in the UK - speculating that this was due to a combination of high upfront handset costs combined with expensive tariffs (in the UK, “plans” are called “tariffs”).

Given the negative reaction from US consumers when Apple substantially dropped the handset price there, it seemed unlikely that they would do something similar in the UK. Nonetheless, Mac Predictions speculated that Apple would have to do something to stimulate sales.

Sure enough, this week, O2, Apple’s UK mobile network partner, announced substantial drops in the prices of their tariffs, plus greater flexibility, with the addition of “bolt on” options. Whilst the iPhone still has it’s own “exclusive” tariffs, they are at least now more comparable with 02’s standard 18 month contracts.

This is a neat strategy, making the iPhone more affordable without provoking the ire of early adopters by dropping the handset price. Instead, early adopters are rewarded with access to the new, cheaper, more flexible tariff options. Mac Predictions suspects that this price drop has been largely funded out of Apple’s commission on 02 revenue, since this is the only obvious reason why iPhone tariffs were more expensive than standard 02 tariffs in the first place.

Apple will be hoping that the newly competitive tariffs will revive UK iPhone sales. The risk is that it’s too little, too late, and that they have now missed their window to gain early sales momentum during the launch campaign and press coverage. This experience in the UK market will likely discourage Apple from pursuing such high-price strategies at launch in other markets, and will likely strengthen the mobile networks’ negotiating position going forward.


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