iPhone 3G poised to make a splash in mature WCDMA markets - Upgraded device to follow 'twice as fast, half the price' strategy

On July 11, Apple will launch a new WCDMA/WCDMA-HSPA version of its iconic iPhone in 21 markets worldwide. Coming two weeks after the first anniversary of the first-generation device - which was only ever launched in six markets - Apple is looking to capture significant market share with its 'twice as fast, half the price' strategy. The 27 operators involved in the simultaneous rollout vary widely, and even the larger operator groups (such as Vodafone) are only launching the device in three or four countries at the most.

The total footprint of Apple's new operator partner network represents just over 32% of all worldwide WCDMA and WCDMA-HSPA connections as of end first-quarter 2008. In terms of WCDMA and WCDMA-HSPA as a percentage of total operator connections, Japan's Softbank leads the way with 75% (14 million) of all its connections on the faster technology, set to grow to 100% over the next few years, according to GSMA Intelligence forecasts. Next in line is Hong Kong's 3 (45% WCDMA/WCDMA-HSPA connections), closely followed by the Portuguese operators Vodafone Portugal and Optimus (42% and 41%, respectively).

There are also four markets where more than one operator will launch the device, a major departure from Apple's previous strategy of tying the device to one exclusive operator partner per market. Australia, in particular, will prove highly competitive with a total WCDMA connections base of 22 million and three out of four operators carrying iPhone 3G. The battle here could become about which operator can offer the most attractive data plans.

In all of Apple's initial markets except Canada, Mexico and the US (where WCDMA is either not the dominant technology or has yet to be launched), the sum of WCDMA and WCDMA-HSPA net additions as a share of total net additions is consistently over 100%. This indicates that the technology is highly-evolved in these markets and is now taking not only a sizable share of the growth, but is also eating into the installed base there. This is of high value for Apple, since it means that the installed base is already sizable, and consumers are keen to upgrade to the latest technologies and devices.

Of the remaining markets not launching the iPhone on July 11, emerging markets such as India, Brazil and Africa will be of great importance to Apple. In these regions and countries, high-growth is sustained as operators continue to invest in building-out GSM coverage. In India, such is the interest in this single device that - despite the fact that the Indian regulator and government has yet to agree on how best to auction 3G spectrum – operators Vodafone Essar and Bharti have already committed to carrying the device, albeit on their GSM networks until such an auction can take place. Meanwhile, in Africa, the iPhone 3G can make a timely introduction in the most competitive markets as operators announce for the first time that data traffic is emerging as a significant percentage of non-voice revenue. Operators such as South Africa's Vodacom and MTN, for example, are poised to introduce data bundles and unlimited service. However, the emerging markets are still areas of slow adoption of high-speed devices and services. And even at the subsidised US$199 price point, the 3G iPhone will find itself in a pricing niche similar to that of the first generation of the device where - for regions of the world where a US$50 to US$400 monthly income is common - a phone is more of an investment than a commodity.

Apple's remaining challenges include two giants of the mobile world - the Chinese and Russian markets. With total respective markets of 559 million and 169 million connections by end of first-quarter 2008, Apple is understandably keen to take a bite out of their customer base, which - especially in the case of China - will see even faster growth than most other emerging markets.

Will Croft, Analyst, GSMA Intelligence:

A portfolio of high-profile devices, such as Apple’s iPhone 3G, provides lucrative selling and investment power for operators. In markets where HSPA networks are well established and coverage is good, iPhone 3G will strengthen operators’ portfolios and help drive sales of HSPA handsets as omnipresent HSPA coverage becomes a reality. For up-and-coming HSPA markets, devices like the iPhone 3G will trigger the wider adoption of HSPA, which will, in turn, encourage further investment in next generation mobile networks.

Instead of building another premium-priced handset, Apple has simply upgraded the existing model with the two most requested features and halved the price to earn, what they hope, will be retainable market share, winning customers over with ease-of-use and killer applications provided by third-party developers. Having adopted the more traditional model of subsidy-based sales, Apple is attempting to transform the iPhone into a mass-volume device over the coming years. It’s now up to the operators to ensure they aren’t pricing potential customers out of the equation with exorbitant data rates and unnecessary usage caps.