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What Awaits the iPhone in Europe?

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Will the iPhone change Europe? Or will Europe change the iPhone? Two recent newspaper reports published on the Continent say that Europe appears to be exerting the greater influence so far on the iconic device. Neither report revealed its source, but both asserted that Apple was poised to fundamentally change the way it sells the iPhone in Europe, giving up its demand for a share of data revenue from operators -- which some analysts say is as much as 30 percent -- to accommodate local preferences for less expensive, subsidized devices. In France, Les Echos reported on April 17 that Apple was pressuring Orange, the France Telecom subsidiary that is its exclusive sales partner in the country, to lower its euro 399, or $630, price for the iPhone to improve sales. In Italy, La Repubblica reported Monday that Apple was prepared to give Telecom Italia a non-exclusive right to sell a new, high-speed version of the iPhone that would work on Telecom Italia's third-generation network without demanding a cut of revenue. Representatives of Apple and the operators declined to comment. Carolina Milanesi, the research director of mobile devices in London at Gartner, the research firm, said it was likely that Apple would begin to tinker with, if not significantly change, the mechanics of its business model this year to ease its expansion into new European markets. Several factors are pressuring Apple to abandon its exclusive sales strategy, Milanesi said. One is softening demand for expensive cell phones in Europe, cited by both Nokia and Sony Ericsson in their latest quarterly earnings reports. Another is the vagaries of the European national markets, which can make a single sales strategy impractical. In Germany and France, for example, consumers are conditioned to pay heavily discounted prices for new cell phones in exchange for one- to two-year service commitments. "We have been advising Apple to change its strategy in Europe," Milanesi said, referring to Gartner's research reports "If they don't want to remain a niche player, they need to open up and make the proposition more attractive. Europe has been less excited about the iPhone than the United States. The European market is more competitive and there are more high-end devices to choose from. So the iPhone doesn't stand out as much."
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