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By Jo Best, 12 March 2007 09:00

COMMENT

When Apple unveiled the iPhone, it set the whole mobile industry talking - not just about the device but about the unusual agreement between Apple and mobile operator Cingular. Jo Best says it's the pact between these two tech heavyweights that really makes the iPhone stand out.

When the iPhone was shown to the mob at Macworld, industry pundits were split on whether the Apple mobile would, as head honcho Steve Jobs said, revolutionise the industry or not. Some thought it was a kick in the teeth to the entrenched might of Nokia et al. Some thought it lacked the prerequisite bells and whistles to impress a demanding mobile consumer base.

Nevertheless, it looks like the advent of the iPhone has indeed brought what could be a sea change in the mobile market. And it's nothing to do with the device.

It's all about how the latest entrant into the handset-making world handled its operator 'partner'. Given both handset-maker and operator rely on each other, there's always a little argy-bargy between them - a bit of tension on what features should and shouldn't be included and how much of the handset cost the operator will subsidise.

Handset makers know which side their bread is buttered - with operators buying most of their wares, they get to call the shots. This is one reason, some believe, why dual-mode handsets have been slow to appear. Mobile operators aren't keen on the devices because they believe the VoIP capabilities will harm their voice revenue. And so they aren't buying them, the logic goes.

But with the iPhone, Jobs has done away with that delicate dance between mobile maker and mobile network. According to The Wall Street Journal, Jobs didn't even show the phone to the head of the network that was to carry the device until just weeks before it was unveiled to the world. And only three Cingular execs had seen the device at all before it debuted, the WSJ said.

And that's just the start of it, apparently. It seems the iPhone operator Cingular rolled over and kept on rolling.

The operator logo that normally adorns a mobile is notably absent on the iPhone. The inclusion of a portal directing users to ringtones and other mobile content that generates revenue for the operators has also been ditched. And Jobs has trimmed the network's profits by claiming a portion of subscriber revenue.

Even the distribution network got a makeover - the device will only be sold through Cingular and Apple stores and websites, not through big name channel stores such as Wal-Mart.

Rival network Verizon Wireless was offered the iPhone deal and shunned it. Cingular lapped it up.

Cingular must be expecting some big things from Apple. Apple hopes to sell 10 million iPhones by 2008. The device comes out in June, just in the US, with other territories following on later. It took the Razr two years to reach 10 million in a similar period so it's not an impossible target. The Razr even entered the market at a similar price point and didn't have the same high-end features and functionality the iPhone boasts.

However, when the Razr entered the market, it was genuinely new. There were no devices boasting the same level of style and that's what helped it sell like the proverbial hot cake. The iPhone, as a touchscreen multimedia device, already has some similar rivals - looks-wise and gimmick-wise. Whether it can do the job better than them remains to be seen but it's more than likely the competition will at least be cheaper.

Of course, it's not the cheapskates Apple wants to appeal to. It sees the iPhone in the hands of high-end users who do more than just talk and text, who play with all the features their phone offers and spend on data services accordingly - Apple will get a cut of those data fees, after all. Jobs and co want their handset owners to download ringtones over the air, say, use location-based services, maps and browse the internet like there's no tomorrow.

Which they may well do - if only they had a decent network to do it on. The iPhone is after all a 2.5G device and will struggle with some of the more bandwidth-intensive tasks and bulky downloads.

Quite why Apple launched with no 3G is a mystery especially given Cupertino execs have as good as promised there will be a third-gen variant soon, perhaps making the 2.5G version obsolete before the originals get to their third birthday. The network operators may be crying out for a 3G iPhone to boost revenues but consumers who have bought a 2.5G version might be slightly irate.

It's one more thing that doesn't add up in the whole iPhone business model. To the outside world, it looks as if Apple has Cingular over a barrel in a deal that has doubtless got other handset makers gnashing their teeth with jealousy at its generous terms. Apple on the other hand is tied to Cingular for a while, meaning the fate of the iPhone is now as much down to the operator as it is to Apple.

The union between Apple and Cingular is something of a novelty and its impact on the industry could be far more widespread than that of phone itself.