iPhone UK Price War & 'World Domination'?

As we said before the newly competitive iPhone market in the UK will be one to watch. With Vodafone, O2 (which just sold out of 3GS inventory) and Orange selling the Apple handset in the UK, we're likely to see a price war. How will that play out as each carrier tries to be the one that lures subscribers or seeks to retain subscribers? Some have speculated that prices will rise on other handsets to offset the deep subsidizes that are anticipated for the iPhone. Will it get to free with a 24-month agreement? (My guess is yes).

This could be a precursor for the US when the iPhone comes to other carriers. There's been considerable discussion in the past couple of days, based on a Morgan Stanley analyst report, that the iPhone could more than double market share in the US once it leaves AT&T exclusivity behind. I would agree and be even more aggressive in predicting that the device might climb to nearly 50% of the US smartphone market if it were available from several carriers. 

Under a multi-carrier scenario like this -- think 2011 in the US -- we'd see aggressive pricing on the device as carriers try to lure and retain customers, as we're likely to see in the UK. I don't think we'd get free iPhones in the US but we might hit a new smartphone ceiling of $99 (currently it's $200 with operator subsidy). 

The iPhone in particular has shifted the balance of power from the carrier to the OEM and OS providers. The UK situation illustrates this very clearly. The carriers are the pipe -- notwithstanding Vodafone's new personalization/PC-crossover strategy -- and that's not likely to be changed by software layers, carrier app stores or social media strategies. 

In terms of handset competition, there are only two smartphone "brands" in the US: iPhone and BlackBerry. Windows Mobile is not a consumer brand; we'll see what happens with "Windows Phone." Android is not (perhaps yet) a consumer brand. Nokia is all but done in the US (absent an aggressive low-end strategy). Globally Nokia remains very strong and Windows will be competitive by virtue of the sheer number of handsets in the market. The Pre has lots of buzz and mindshare at the moment, so it's got a good base from which to build a strong brand. However, usability is mixed and will need to be improved for long-term competitive sustainability. 

BlackBerry's consumer future is not entirely clear and contingent upon improved mobile browsing and overall usability. Android should chug along and grow as more OEMs introduce the handsets and more carriers pick them up. Pricing should get more competitive across the board. And there will likely be consumer confusion as people try and decide between, say, the HTC Android handset and one that appears almost identical but runs Windows. Microsoft can try and leverage cloud services and its PC dominance to differentiate, but the OS needs to get better overall.  

In this climate of intense competition and potential consumer confusion, the iPhone wins. This is especially true if it's available through multiple carriers who are aggressively subsidizing it. So far it's an unbeaten device (except for the dropped calls part) and has strong brand recognition in the market. If the price comes down (to $99 in the US and free in the UK) and it's widely available through multiple operators it will fly off the shelves -- and become the iPod of phones to so many other MP3 players in the market. The other handset OEMs and OS vendors must struggle mightily to avoid that.