Reports: Vodafone Close to Snagging iPhone for Europe

European wireless carrier Vodafone (NYSE: VOD) may be close to landing one of the biggest prizes in recent memory in the mobile industry -- the right to be the exclusive carrier for the Apple (Nasdaq: AAPL) iPhone across Europe.

Vodafone would be in the same role that AT&T (NYSE: T) will play in the U.S. when the iPhone launches on Friday after several months of hype and anticipation.

The deal is close to being finalized, according to various reports, with the last details to be worked out to include what subsidies may be involved and whether Vodafone will have to guarantee Apple a minimum sales figure. Apple did not immediately respond to a request for comment.

UK-based Vodafone has long been viewed as the most likely carrier to emerge victorious in the iPhone sweepstakes. Others known to be in the running include the France Telecom (NYSE: FTE) subsidiary Orange and Deutsche Telekom (NYSE: DT), the national carrier in Germany.

How Many Gs?

The choice of Vodafone may suggest that Apple will offer a slightly different version of the iPhone for European launch. In the U.S., the phone works on AT&T's Edge data network and also can operate on WiFi networks. Early reviews of the device, which Apple has said will revolutionize the handheld device industry the way the Mac set the PC world on its ear and the iPod changed digital music, suggest the speed of the Edge network may frustrate users trying to download data.

Apple decided not to make the first iPhones compatible with 3G in the U.S. However, in Europe, 3G networks are far more ubiquitous, and it may make more sense for the iPhone to operate on that platform, which will offer faster data speeds.

Apple has not yet said when it will launch the iPhone in Europe. In the U.S., both Apple stores and AT&T have been gearing up for what they expect to be an onslaught of customers when the phone begins selling Friday evening.

Carriers wants the iPhone not only because of the Apple brand name cache and the millions of dollars worth of free publicity the phone will receive as it launches in the U.S., but also because of who iPhone buyers will be, said Yankee Group telecom analyst Matthew Hatton.

"The iPhone adopter, especially those who buy early, will be those who are comfortable spending more on technology, including services to support their devices," Hatton told the E-Commerce Times. For mobile carriers, a user base that will have a higher annual monthly bill would significantly boost profits.

Vodafone could use some help in that area. In May, the carrier said it cut its losses for the last fiscal year, but still bled red ink to the tune of nearly US$11 billion.

The iPhone is expected to hit the streets in Europe by the end of the year, making it likely that Apple's choice of carrier will be announced any time. Pricing the iPhone is said to be an issue of contention that is stalling talks. European consumers in general are used to spending less up-front for high-end handheld devices, Hatton noted. How much, if at all, Vodafone is willing to subsidize the initial expense of the phone may be in question as well.

The phone's price could possibly be lowered or subsidized after the initial burst of sales. AT&T rebates that are under consideration could shave up to $150 off the price tag of the device, a move that could further boost sales, American Technology Research analyst Shaw Wu said in a research note.

Two-Way Street

The choice of a partner in Europe is key for Apple to hit its sales target of moving 10 million of the devices by the end of 2008, a goal that Apple CEO Steve Jobs set out when the iPhone was announced early this year.

Vodafone has some 200 million customers in a coverage area that includes most of the European continent and fast-growing markets in Eastern Europe and places such as Turkey.

It is unclear whether the 10 million-unit mark is a realistic goal for Apple, especially given the constraints on adoption, including the relatively high price tag -- the unit will sell for $499 and $599 in the U.S. -- and because AT&T has exclusive rights to carry its service.

Just as importantly, other high-end mobile devices may have the advantage of selling into both the consumer and business markets, and it's not clear that the iPhone -- with its heavy emphasis on music and video and its ultra-sleek design -- will find traction in the corporate market, where Research In Motion's (Nasdaq: RIMM) BlackBerry has had great success .

Enterprises need to be cautious about allowing their employees to use the iPhone, said Gartner (NYSE: IT) analyst Ken Dulaney. The fact that the device was apparently designed with the consumer in mind and other factors should be enough to give networks administrators pause about the security and compatibility ramifications of the device, he noted.

"The device raises manageability and security issues that, at the very least, organizations need time to sort out and consider," Dulaney said. "Most will find they don't have the capacity to support the phone right now."