Do Multi-Year Exclusive Phone Handset Deals Make Sense?

When Apple launched iPhone in Europe it bucked traditional wisdom. Rather than striking short term exclusive deals with an operator in each market for 3-6 months, it chose to sign multi-year relationships. Matthew Key, then O2 UK CEO, confirmed this time period at the UK launch.

The press coverage, discussion and hype around iPhone was extensive, even before the iPhone officially launched in Europe. But the initial deals with O2 UK, Orange France, and T-Mobile Germany had only modest success during 2007 and early 2008 in converting that into sales.

While Apple secured an initial pr boost -- but one which Apple could have secured with shorter exclusive periods -- over the medium term Apple is completely dependent on a single operator to deliver a good network, customer service and brand experience that matches Apple's brand promise. If an operator fails, then Apple and iPhone suffers.

Long term exclusive operator deals may make more sense in the US. There, no single handset will work on all mobile networks so there is less to lose with an exclusive deal. The GSM/3GPP iPhone is compatible with either AT&T or T-Mobile but won't work on Sprint, Alltel or Verizon's networks. AT&T has certainly performed well for Apple in pushing iPhone. By contrast, going non-exclusive in Europe leads to vastly greater reach than any single operator could possible match as all operators use the same mobile standard and so all can offer the same handset.

In 2008, when Apple launched the iPhone into a swathe of new countries, Apple changed strategy and supplied multiple operators. Apple will have the data to compare the new batch with the exclusive deals from 2007.

Those operators sitting on exclusive multi-year iPhone deals must make sure they up their game if they wish to renew. Apple may decide it no longer needs their help and is strong enough to switch. Poor customer service, poor sign-up processes, patchy network performance, arbitrary restrictions on speeds, and so forth will destroy their case to be a partner to the Apple brand with its promise of quality and simplicity.