Apple signs iPhone deals for Europe, report says

New business model will send bigger cut of revenue to Cupertino

Apple Inc. has signed its first deals with mobile phone service providers to offer the iPhone in three of Europe's largest markets, ending a period of intense negotiations, according to a report in the Financial Times newspaper.

Germany's T-Mobile Deutschland GmbH, France's Orange SA and the U.K.'s O2 (UK) Ltd. are reported to have signed exclusive deals to sell the iPhone in their respective markets.

The service providers have agreed to give Apple 10% of the revenue generated from sales of voice and data services for the device, according to the Financial Times story, which cited unnamed sources. The service providers hope to introduce the phone in time for the holiday shopping season.

Apple plans to announce the deal officially at the IFA international consumer electronics exhibition in Berlin next week, the Financial Times reported.

The iPhone launched in June in the U.S. through an exclusive partnership with AT&T Inc. Initial reviews were positive, except for concerns about AT&T's slow EDGE (Enhanced Data for GSM Evolution) data network, and the fact that the iPhone's battery can only be replaced by returning the device to Apple. There were also activation problems during the first weekend, when thousands of customers tried to activate their phones at the same time and overwhelmed AT&T's servers.

Since then, speculation had been rife about who Apple would partner with in Europe. Most initial reports agreed that T-Mobile and O2 would be among the partners. Some reports, citing unnamed sources, said that Vodafone Group PLC, Europe's biggest mobile service provider, had been outbid by rivals in eleventh-hour talks.

Europe's splintered telecommunications market makes it harder for Apple to launch the iPhone here than in the U.S. None of the big carriers cover all of Europe's most populated markets, forcing Apple to strike deals with several companies.

The iPhone could provide a boost for mobile service providers in Europe, where brand loyalty is not very strong and customers tend to choose service based on coverage, Forrester Research Inc. analyst Niek van Veen said in a recent interview.

Apple's new smart phone may also help them to secure longer-term contracts with customers, who tend to favor prepaid calling plans in Europe over long-term subscriptions. That same factor could also work against the iPhone in Europe, however. Apple and AT&T require iPhone customers to sign up for two-year contracts, and that's an unusually long period.

Apple's steep demands may have made it harder for the company to reach agreements, van Veen said.

AT&T reportedly is also sharing a portion of the revenue from the iPhone. It's a new business model that Europe's carriers may be reluctant to swallow, van Veen said.

"It's more than just a question of reach and what Apple wants, it's how much operators are willing to sacrifice their current [business] model for this phone," he said.

The contracts with T-Mobile, Orange and O2 were signed in recent days, according to the Financial Times. The top executives of T-Mobile and O2 campaigned for personal talks with Apple CEO Steve Jobs, the paper said.

The story appeared first in the German-language Financial Times Deutschland and was reported later in English in the U.K. Financial Times.

James Niccolai in Paris contributed to this report.

Copyright © 2007 IDG Communications, Inc.

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