Apple has reduced the price of its new handset, but mobile users in the Republic still face higher tariffs than in the UK, writes John Collins.
STEVE JOBS, Apple's iconic chief executive, delivered for the Apple faithful last Monday when, as expected, he announced that the iPhone 3G would be available in 22 countries worldwide on July 11th.
Not only does the new device have numerous improvements over the first iteration of the iPhone, but Jobs said he would address the main issue that prevented people from owning one - the price.
Jobs said the price was being reduced to $199 (€129.15) from its current $399 "making it affordable for almost everybody". While he didn't discuss it at the keynote address, the price drop is a result of a significant change in Apple's business model and the way it deals with mobile operators.
Up to now, Apple had attempted to break the mould on the way handset makers and operators deal with each other. Operators generally held all the cards and dictated terms to the manufacturers.
But in saturated markets like the US, Britain, Ireland, France, Germany and Austria, where it first launched the iPhone, Apple was aware that operators would be keen to have a product like it.
As a result, it was able to negotiate a revenue split with the networks - reportedly getting one-third of all service revenues generated. The downside for customers was that operators were not willing to subsidise the handsets by as much as if they were splitting the service revenues. This made iPhone purchase prices high. Apple's ability to quickly move into new markets was also hampered as negotiating these deals took longer.
In the run up to Apple's Worldwide Developer Conference last Monday, where Jobs made his announcement, Apple quietly dropped that business model. Instead operators now pay a subsidy to Apple for every iPhone sold, reducing the price, and the network keeps all the revenues.
Jobs's comments on price were subtly misreported by a number of US bloggers reporting live from the event. They said the 8 gigabyte iPhone 3G would have a maximum price of $199 in all 22 countries where it is being launched next month. What Jobs actually said was that "in almost every one of these countries the maximum price is $199".
The following day, when O2 Ireland announced details of its pricing - varying from €49 to to €229 - online discussion boards, blogs and Twitter accounts lit up with indignation. People felt particularly aggrieved because they believed Jobs had specifically said the maximum price would be $199 in all countries.
Either way, O2 is significantly slashing the purchase price of the iPhone in Ireland. Currently, the 8 gigabyte model retails for €299, while the 16 gigabyte version costs €499. However, the tariffs (see table), to which customers have to sign up for 18 months, remain unchanged.
This means someone buying an 8 gigabyte model signing up for the €45 plan will pay a minimum of €979 while buyers opting for the larger capacity 16 gigabyte model and the top-end €100 plan will pay at least €1,929. In the UK, the same options cost slightly less but, as the table demonstrates, there are significantly more free minutes, texts and data included.
One of the most innovative features of the iPhone, visual voicemail, is also supported in the UK but not in the Republic. This provides the ability to skip through voice messages simply by tapping on the message you want to hear.
Pat Phelan, managing director of Cubic Telecom, was fiercely critical of the original iPhone pricing when it launched here last March and accused O2 of imposing a "Paddy tax". While welcoming the price cuts on the handsets, he says the unchanged tariffs are "disappointing". "It's cheaper than here everywhere else," said Phelan.
Despite this, he said he was likely to purchase an iPhone 3G in the Republic but will unlock it so he can run it on the Vodafone network. When asked about the price disparity with the UK, an O2 spokesman said that "fundamentally the UK and Ireland are different markets". He said the Irish tariffs are "extremely competitive compared to other price plans available on the Irish market".
Detailed pricing information from markets other than the Republic and the UK is still difficult to obtain. T-Mobile Germany has promised a "significant price cut" when it introduces the iPhone 3G. It says it will release a new pricing structure for the device within the new two weeks.
A spokesman declined to say yesterday whether the new prices would resemble those of O2 in the UK, but confirmed that existing iPhone owners could upgrade to the new device at a discount.
"Every market is different and every provider sets their own prices," said spokesman Alexander von Schmettow.
The German-language internet is already buzzing with rumours of a €99 entry-level device with a two-year contract. To clear its back stock of first-generation iPhones, T-Mobile Germany is already offering the current device for as little as €99, bundled with a two-year contract with €89 rental.
In the US, ATT has said pricing for the iPhone 3G will start at $199 for the 8 gigabyte model and $299 for the 16 gigabyte, but buyers will have to agree to sign up to a two-year contract. Prices for unlimited data plans will begin at $30 ($45 a month for business users), with voice plans starting at $39.99.
Respected technology blog Gizmodo has carried out a price comparison of the original and new iPhones. While the purchase price has been cut by $200, the cost of a data plan (which has to be purchased separately) has increased by $10 a month and an SMS plan also has to be bought at a cost of $5 for 200 messages a month. As a result, the two-year cost has increased from $1,815 to $1,975.
Gizmodo concluded that "$160 is a small price to pay - for us at least - over the course of two years to drastically increase your e-mail and browsing speeds."
While Irish tariffs remain unchanged, O2 has enhanced the service for Irish customers through a deal with hotspot operator Bitbuzz that will provide free wireless internet access at its 155 locations in Ireland. Bitbuzz provides services in hotels, cafes, bars and other public spaces and the deal is for an initial two years. In the UK, O2 has a similar arrangement with The Cloud and BT's Openzone service, giving access to a combined 9,500 hotspots.
According to Bitbuzz managing director Shane Deasy, the company has implemented a new sign-up system that will ensure that once an iPhone customer has logged in at one hotspot, they will be automatically recognised when they enter another one.
"There will be no need to go to a portal on the web like on a Nokia N95 or other handset," says Deasy. "We are currently looking to do deals with other handset manufacturers and operators."
Although neither O2 nor its exclusive retail partner Carphone Warehouse have yet released any figures for iPhone sales since the March launch, they claim to be happy with progress to date. The handset price reduction is likely to increase demand further.
But the move to 3G networks, one of the major pluses of the new device, is also an Achilles heel. O2 is the only operator to have an Edge network, on which the original iPhone ran, but Vodafone and 3 Ireland also have 3G networks and Meteor is building one.
This means tech-savvy buyers can "jail-break" their phones and run them on other providers' networks. Without a further reduction in tariffs, this may become an issue for O2. - (Additional reporting by Derek Scally in Berlin)
