O2 Confirms iPhone 3G Exclusivity

So hot was the iPhone when Apple launched it last year that, in exchange for exclusive rights, network operators agreed not only to sell it at a high price, but to hand over a share of their user revenues as well. The normal tactic of mobile operators, however, is to subsidise the handset in order to attract high-spending customers. The iPhone may be flash, but it has struggled to compete with other handsets that are given away at no upfront cost.

That is a pity because mobile phone subsidies are inefficient. They prompt customers to change their handset every couple of years, when they come to the end of a contract, which has an economic cost. The constant churn in handsets also makes it harder to design new applications to run on them.

Perhaps Apple missed an opportunity: had it sold iPhones with no link to a network contract then the cycle of subsidy might have been broken. But that was always a long shot in a fiercely competitive market. The question now is which will bother the iPhone’s painfully cool users more: that they had to pay a fortune for the gadget, or that, with subsidies, the general public may start to buy them as well.

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