Apple iPad: UK phone operators vie for deals

Steve Jobs has fired the starting pistol in the race to bring the iPad to the UK, with several mobile phone operators and retailer Carphone Warehouse interested in selling Apple's new tablet computer to consumers this side of the Atlantic.

Jobs announced on Wednesday that a version of the device that can access
3G mobile phone networks as well as Wi-Fi will start shipping in the US in April under a deal with AT&T, which already supplies the iPhone in North America. Mobile phone companies in the UK – O2, Orange, T-Mobile and Vodafone – are looking to strike similar deals in Europe ahead of a launch later in the year.

Andrew Harrison, UK chief executive of the Carphone Warehouse, welcomed news of the Apple device, adding: "To me, the really interesting thing is what we are seeing is devices designed with how the consumer uses the internet very much in mind, rather than just a computer that was made for business use trying to fit the consumer."

Carphone Warehouse, Europe's largest independent mobile phone retailer, was Apple's exclusive third party retail partner for the iPhone and Harrison obviously hopes to repeat the experience with the iPad.

"Our perspective is we play in the world of connectivity and particularly mobile connectivity and this device fits well within that; we think there will be a whole range of them. This is an extension of a smartphone perhaps even more than it being a smaller PC. It is much more in the territory that we operate in," he said

"We have done a phenomenal job with the iPhone and smartphones in general and bringing connectivity is something we would be delighted to talk to Apple about."

But the AT&T deal shows that Apple may be approaching the involvement of mobile phone operators with the iPad in a very different way from the way that it uses them for the iPhone.

Traditionally, mobile phone companies "subsidise" the up-front cost of hardware – usually mobile phones, but increasingly laptops – in return for persuading a customer to sign up to a long-term contract. The operator assumes it will make the subsidy back over the life of the contract. That is how the iPhone is sold in the US and Europe, while even Google followed this model with its Nexus One, signing a deal with T-Mobile in the US which sees the phone's $529 price tag fall to $179 in return for signing a contract. Vodafone is expected to sell the Nexus One in the UK at roughly the same price point as the iPhone.

Already several UK mobile phone companies subsidise the cost of laptops to persuade customers to sign up for long-term mobile broadband contracts. Anyone signing up to a two-year mobile broadband deal with T-Mobile at £40 a month, for instance, gets a free Sony Vaio laptop worth £499.

But with the iPad, Apple has forced AT&T to give up on persuading customers to sign long-term contracts. Instead the iPad will effectively be available on what in Europe would be seen as a 30-day rolling SIM-only contract such as those offered by O2 and Vodafone.

Customers have two pricing options in the US, a mere 250MB of data for $14.99 a month, or unlimited data for $29.99 a month. That means that while the basic version of the iPad – without wireless capabilities – will start at $499, the 3G version of the device will start at $629. Under the traditional operator model, the 3G version of the device would have been cheaper.

"It does not look as though it has the traditional subsidy model," said Harrison. "If you put Wi-Fi and 3G in it, it is actually more expensive not less expensive."

In a note on AT&T following the news, Jonathan Schildkraut, analyst at Jefferies & Co investment bank said the tariffs are "in line with the current data add-on options available with voice packages, and well below the roughly $60 plans currently offered by wireless carriers for a laptop card. The prepaid plan can be activated directly from the iPad and, because there is no contract, can be canceled at anytime."

"Given the prepaid nature of the service associated with this product, including the no contract/cancel at any time feature, we expect that AT&T would not have to subsidise the device. We would view this as a significant positive – given the large subsidy associated with the iPhone (estimated at up to $400). Additionally, this would imply better overall economics around the device (without the initial margin dilution of an iPhone sale)," he said
 "The flip-side, of course, is that the usage patterns of this type of device are unknown. However, given the multimedia capabilities, and the video functionality in particular, we would assume that iPad could be another network hog. This could drive incremental congestion issues on AT&T's already strained network – leading to further network dissatisfaction, and potentially a need for ongoing higher levels of capital spending".

In other words, not getting people to sign a contract gives the operator very little chance to factor the potential cost of future infrastructure investment into its pricing plans. Then there is the worry that applications which allow internet telephony – such as Truphone and Skype, which are already available on the iPhone and will port to the iPad – will further erode the network's profitable voice and text traffic.

Apple initially sold the iPhone through exclusive partners in the US, UK, France and Germany, but for the iPad the British mobile phone companies are not expecting Apple to offer exclusivity. None of the mobile phone companies was willing to comment on the iPad.

Incidentally, anyone who already has a wireless broadband "dongle" under a long-term contract and is thinking about buying an iPad and putting the SIM card from their laptop card into the iPad will be disappointed. The iPad is the first mass-market mobile device to use micro-Sim cards, which are smaller than the current range of Sim cards and were designed for small consumer gadgets such as Birmingham-based Lok8u's range of wireless-enabled wrist watches.

The iPad is also likely to prove a major headache for makers of similar devices, especially Taiwan's Asus which recently announced plans for its own tablet, and Nokia which last year unveiled a "booklet" computer with built-in 3G. There are also understood to be several tablet computers running Google's Android software in the works, with France's Archos rumoured to be planning to release one in March.