APPLE LOOKS set to embark on a sweeping change to its business model for the iPhone by abandoning its revenue-sharing arrangements with mobile phone operators.
The US computer company has agreed the new iPhone should be subsidised by the mobile operators that sell it to consumers, according to people familiar with the situation. Apple and the other companies involved declined to comment.
The subsidy plans should reduce the retail price of the iPhone significantly. Analysts said the new iPhone could go on sale to US consumers for $200 or less, compared to the current $399 for the mark one version.
Steve Jobs, Apple's chief executive, is expected to unveil the company's iPhone using third generation mobile technology on Monday. The 3G iPhone will offer much faster web-surfing speeds than the mark one version.
Mobile operators will incur significant costs by subsidising the 3G iPhone, which explains why they have pushed for the revenue- sharing arrangements with Apple to be dropped.
Last year Apple struck exclusive network deals for the iPhone with AT&T in the US, O2 in Britain and Ireland, France Telecom and Deutsche Telekom.
Under the deals, the operators reluctantly agreed to hand over a portion of the monthly revenue paid by their iPhone customers. As much as 25 per cent of that revenue might have gone to Apple.
Such arrangements are rare, but it underlined how Apple's negotiating power was strong given the iPhone set new standards in mobile phone innovation with its touch screen and web browser.
While Apple may have been reticent about giving up the revenue- sharing arrangements, the company looks to have found common cause with the operators on the subsidy plans. It should enable Apple to drive up iPhone sales and turn it into a handset for the masses.
The operators, meanwhile, will bear the subsidy costs given the iPhone has brought the mobile internet to life and opened up new revenue opportunities, such as advertising.
Apple has a target of selling 10 million iPhones in 2008, and has reported sales of 1.7 million between January and March. Assuming a further 1.7 million are sold between April and June, Apple would need to nearly double the sales rate in the second half of the year. Sales should be boosted by Apple expanding the number of operators selling the iPhone from four to 13.
