In Italy, Apple Shifts IPhone Strategy

Since the iPhone debuted last June, Apple has followed the same gameplan for introducing its mobile device to a new market: Find a local service provider and ink a deal granting that company exclusive rights to providing cellular service for the iPhone.

That was Apple's M.O. until earlier this week, at any rate. On Tuesday, news broke that the iPhone would expand its reach into Italy later this year. But instead of being locked into one provider, Italian iPhone customers will have a choice--both Vodafone and Telecom Italia struck deals with Apple to offer service for the mobile device.

Having two partners in one market certainly signals a change from how Apple has grown its iPhone business in the past year. And it's a pattern that could repeat itself as the company looks to expand into additional countries in 2008 and beyond.

But don't expect Apple to entirely abandon its exclusive partner strategy, analysts say--which means iPhone owners in the U.S. should expect AT&T to remain the exclusive service provider for the phone, at least for the foreseeable future.

Besides AT&T's lock on the U.S. market, Apple has exclusive deals in place with O2 in the U.K. and Ireland, T-Mobile in Germany and Austria, France Telecom's Orange in France, and Rogers Communications in Canada when the phone arrives in that country later this year.

Italy will be a different market altogether, with Telecom Italia and Vodafone vying for customers. In addition, Vodafone's deal with Apple will let customers in Australia, the Czech Republic, Egypt, Greece, India, Portugal, New Zealand, South Africa and Turkey buy the iPhone for use on the company's networks there later this year.

Why did Apple shift its long-standing strategy for rolling out the iPhone to Italy? An analyst familiar with the European mobile market says Italy's climate is much different from other countries in Western Europe.

"Some 88 percent of subscribers are on prepaid plans in Italy, compared with just 51 percent in the rest of the continent," said Neil Mawston, director of wireless device strategies for Strategy Analytics in the U.K. "There are very few postpaid subscribers in Italy, making it harder for Apple to earn money from revenue-sharing. Hence, Italy could, for now, be the exception rather than the rule."

However, that could change as the iPhone business expands. Mawston believes that Apple will continue to seek out multiple operators as it looks to launch the iPhone in new countries, allowing it to increase sales and market share.

"In the long-run, we expect Apple to adopt a multi-operator distribution strategy," Mawston added. "Apple will never be a mass-market global player by just targeting one carrier per country. LG has tried making exclusive deals with 3G operators in Western Europe in the past, and that resulted in lackluster shipments and a loss of market share due its limited retail presence."

But a shift to multiple carriers doesn't figure to happen in markets where Apple already has a partner lined up--particularly in the U.S., where AT&T has been the iPhone's exclusive service provider since day one. So long as AT&T has an agreement in place with Apple--and it's widely believed the current pact runs for five years--customers looking to buy an iPhone will have to get their service through the telecom giant.

Further down the road, though, things could change in the U.S.

"In the U.S., there is ample precedent for handsets coming to other carriers after a window of exclusivity," said Ross Rubin, director of analysis at market-research firm NPD. "With T-Mobile now embracing 3G and Verizon looking to switch to LTE and more open handset choice in the future, chances are improving that the iPhone will eventually come to other carriers if AT&T no longer offers enough incentive to Apple to keep it exclusive."

Strategy Analytics' Mawston agrees: "AT&T is likely to be the sole supplier for the U.S. in the near-term, unless the deal gets renegotiated." he said.