iPhone pricing set to crash as Orange and Vodafone agree on distribution deals

O2 UK has relinquished its exclusive distribution deal for the iPhone taking advantage of a two-year break clause with Apple. The agreement, which has seen Orange and Vodafone both step forward and sign up to sell the iPhone, will mean that O2 no longer has to share service revenues with Apple.

This shift in distribution is widely expected to trigger an iPhone price war among the UK's three largest mobile phone networks, although subscribers will still have to sign up to a long-term contract.

"The big winners here are Apple and consumers interested in the iPhone," said Neil McHugh, MD of mobile phone price comparison site Rightmobilephone.co.uk. "Now that O2's monopoly has finally been toppled and with the iPhone now available on three different networks, we should be able to see a much more competitive market, which is only a good thing for consumers."

However, some analysts are questioning whether O2, having lost exclusivity, can hold on to its valuable iPhone customers. "When Telia lost its iPhone exclusivity deal in Denmark, it discounted its existing contracts by between 30% - 40%. We could see a similar strategy in the UK," said John Strand of Strand Consult. "But, the deal is in line with Apple's distribution strategy which is to increase its distribution power. But it leaves O2, Orange and Vodafone to battle it out as to who can offer the cheapest iPhone. This will trigger a price war, and the only winner will be Apple."

Geoff Blaber, an analyst with CCS Insight, added further insight believing that Orange would need to apply competitive subsidies to gain market share. "O2 has had the iPhone for a long time and Orange will not get anywhere near the same increase in subscriber growth as O2 unless it can price it more competitively."

Blaber did not foresee a mass migration of O2 subscribers to Orange or Vodafone, in the short to medium term. "Most are tied into long term 18 month to two year contracts, many of which will have been recently renewed."

Taking a different angle, Neil Mawston, a director at Strategy Analytics, said the deal would impact most severely on other handset manufacturers. "This will put other handset vendors such as Nokia, Samsung and LG under competitive pressure, but particularly the less established smartphone vendors such as HTC."

For more on this story:
The Guardian
and Mobile Today

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