Vodafone to sell iPhone as handset makers seize the initiative

Vodafone has moved with impressive speed to shore up its position in Britain after winning the right to sell Apple’s iPhone from next year, a deal that should stop the flow of its high-value customers to rival networks.

When Orange revealed that it would be selling the mobile phone in time for Christmas, analysts feared that Vodafone could be left out in the cold as consumer demand for the handset has shown no sign of slowing down.

However, Vodafone quickly moved to plug the gap in its handset range after signing a deal with Apple late on Monday evening to sell the iPhone in the UK and the Republic of Ireland from 2010.

The rush to sign up to sell the iPhone once O2’s exclusive deal with Apple ends in November shows that the bargaining power has shifted back toward device makers, such as Apple and Nokia, and suggests that subscriber acquisition costs — a key metric for the financial performance of mobile phone operators — are set to increase accordingly.

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Mark James, an analyst with Evolution Securities, said: “If you get exclusivity of an iconic product like the iPhone, then you can take market share in spades and the manufacturers know that. I don’t think operators hold the cards any more and the issue for the networks now is that all roads lead to costs.”

Operators across Europe, if not worldwide, have struggled to differentiate themselves on service and brand, meaning that signing deals for must-have devices has become paramount, Mr James said. As a result, networks may have to switch their focus from cash preservation and defending their market share to fighting for high-value subscribers.

Cazenove, the investment bank, argued that while the iPhone was “critical” in terms of retaining high-value customers and enhancing an operator’s brand image, the handset could weigh on the profitability of companies that sell it. “We expect weaker margins as operators compete aggressively to attract iPhone users,” it said.

The average subscriber acquisition costs for prepay and contract customers in Britain is about £75. However, that figure is weighed down by the provision of low-end and mid-range phones. Vodafone and Orange’s iPhone aspirations could drive that higher, Mr James said. The two companies hope that rising costs will be offset by much higher data usage by iPhone owners, who use the handset to access the internet and download applications.

This week, Apple said that two billion applications had been downloaded via its store after half a billion were downloaded in the last quarter alone.

Such statistics will cheer Orange and Vodafone, which want to dispel fears that they are entering the iPhone party too late.

While Orange customers have been registering to receive an iPhone for Christmas, Vodafone users can register their interest in the device from today but will have to wait a little longer to get their hands on the mobile phone.

Like Orange, Vodafone has stayed silent on pricing details, although it is widely assumed that competition for iPhone customers could result in lower prices, given the experience in other markets where exclusivity deals have come to an end.