The deal, reported in the Italian broadsheet La Repubblica, was signed by Steve Jobs and TIMs chief executive Franco Bernabe, and will come into effect in June with the much hyped launch of the 3G iPhone in Europe.
iPhone news is picking up apace with the approach of the second generation iPhone, with mobile operators in Europe dumping prices - £100 (nearly $200) in the UK and a whopping 75-percent in Germany – in order to clear out their existing stocks in time for June. The Telecom Italia deal is a very significant as it shows that Apple is bending to the will of the untapped market of consumers not willing to sign up for a very long, restrictive and expensive iPhone contract.
Sales of the iPhone in Europe have been somewhat slower than had been hoped, though Apple will still make it to its target of selling 10 million iPhone’s by the end of the year. However market data suggests that up to half of all iPhone’s sold have been unlocked and are being used on networks other than the ones Apple has prescribed. Apple is now moving in the direction of bringing open-minded consumers into the iPhone fold, reckoning that making less money out of many customers is better than making more money out of a few.
To an extent Apple is getting the best of both worlds – it is making a huge margin out of the early adopters willing to fork out thousands of dollars for their two year lock-in with the iPhone; and once that market has been saturated, it can move to less restrictive service agreements and tap the much wider, price-conscious, market.
The iPhone has proved that it has allure enough to sell at a high price and probably still quite a favourable service agreement level for Apple. By lowering the bar slightly Apple can ensure that its next generation of iPhone’s will continue strong growth into 2009 and beyond.
It is unclear if, when or how the TIM deal will be extended into other markets. Likely Apple will hold off, for one to keep to the terms of its existing contracts; but also to see how the iPhone goes down in Italy, and to work out a strategy for rolling out a less restrictive iPhone to the rest of the world whilst keeping high margins.