Friday, November 30, 2007

Bonjour, iPhone!

On Wednesday night, following a now-familiar ritual, French consumers lined up outside shops to snap up Apple's sleek iPhone handsets as soon as they hit shelves. Orange, France Telecom's mobile subsidiary, which was tapped by Apple to be the phone's exclusive operator in France, kept its Parisian flagship store open until 2:30 a.m. to handle the traffic.

France Telecom (nyse: FTE - news - people ), which has priced the phones at $589 with a two-year contract and $1,106 without a contract, expects to sell 100,000 by the end of the year and 400,000 to 500,000 by the end of 2008.

The French launch has left iPhone enthusiasts wondering where the sleek handset is likely to pop up next. This fall, Apple (nasdaq: AAPL - news - people ) announced that the phone, which debuted on June 29 in the U.S., would subsequently arrive in the U.K., Germany and France in October and November. So far, Apple has kept quiet about the phone's next destination, other than noting that it wants to start selling in Asia some time next year.

The lack of news has left fans, analysts and media outlets devising their own theories. With the three largest European markets already taken care of, the rest of the globe appears wide open. (iPhone launches have thus far proceeded country by country, despite the option of partnering with multi-national carriers like Vodafone (nyse: VOD - news - people ).)

How about China? Italy? Portugal? Or even Austria? Apple is mum.

Here are the factors that likely weigh into the decision: The deals Apple is striking with carriers are believed to include provisions for sharing revenue, which are more generously tilted toward Apple than is the norm for handset makers in the mobile industry. The fact that the iPhone has been priced differently in each of the three foreign markets it has entered thus far points up the complexity of the agreements. (The iPhone sells for $399 in the U.S. and $555 in the U.K. In Germany, "locked" versions of the phone that work only on T-Mobile's network are $589; unlocked versions are $1,478.)

That means Apple's first order of business in selling the iPhone abroad is identifying carriers that are willing to meet its terms. The company lacks the close carrier relationships and extensive distribution networks that more established handset makers, such as Motorola (nyse: MOT - news - people ), have. While it could sell direct to consumers in the 26 countries where it has stores, it still needs to hammer out network agreements. "If Apple is running into any impediments, it's probably on the business side, making deals with operators," says Charles Golvin, a principal analyst with Forrester Research. "As it looks abroad, Apple needs to do much more lengthy negotiations than its peers do."

Next, Apple is also likely to target markets where its brand is particularly popular. "One might imagine they would go after countries where they have found success with the iPod or the Mac," says Golvin. That could favor countries like the Netherlands, which is a strong market for Apple goods. D.P. Venkatesh, chief executive of mPortal, a Washington D.C.-based mobile software manufacturer, thinks Apple may analyze iTunes usage for leads, since iTunes, like most cellphones, is sold by subscription, making it a more relevant business model.

Apple Chief Executive Officer Steve Jobs has said he aims to sell 10 million iPhones worldwide in 2008, a figure equal to 1% of the global mobile phone market. In October, Apple announced it had sold 1.4 million handsets through the end of September.

That aggressive sales goal points to big markets, say, China and India, the world's largest and fastest-growing cellphone markets, respectively. The Chinese market is currently double the size of the U.S., with lots of room to grow. Fewer than half of China's 1.3 billion people currently own a cellphone. Wang Jianzhou, the chief executive of China Mobile Ltd. (nyse: CHL - news - people ), the country's largest mobile phone operator, was quoted earlier this month saying the company was in talks with Apple.

India, on the other hand, boasts a large population with a voracious appetite for mobile devices, but fewer people who can afford the pricey phone. Venkatesh estimates the Indian iPhone market at 25 million people, about 2.2% of the country's population. In a country with an estimated per capita income of $964, and where many phones sell for less than $50, the iPhone would have to go in as a premium product, limiting its sales, says Venkatesh.

"It doesn't seem like a great fit for the Indian market, given the kind of premiums they're trying to charge for the phone itself," says Golvin. But Venkatesh points out that Apple could link up with advertisers and mobile content providers to subsidize the phone's cost.

Australia, Brazil and Russia are also good bets for Apple, as all have enough potential customers to form a solid user base for the iPhone, says Venkatesh. Dubai and the United Arab Emirates could be attractive, given their skyrocketing levels of disposable income, he says. And Hong Kong and Singapore, where the population is considered particularly gadget-savvy, would also be a natural fit.

Now the hurdles. First there's the not-so-small issue of standards. For now, the iPhone works on a kind of technology called GSM (Global System for Mobile communications), which isn't available in the gadget-friendly markets of Japan and South Korea.

AT&T (nyse: T - news - people ), Apple's iPhone partner in the U.S., recently confirmed that Apple will launch a 3G iPhone next year. That change will help: Europe has enthusiastically taken up the 3G standard with about 45 million subscribers as of this spring, according to 3G.co.uk, a Web site that tracks 3G news. The high-speed Internet technology is particularly popular in Italy, Portugal and Sweden. "We'll look at the iPhone when it becomes 3G," says Boris Nemsic, chief executive of Telekom Austria Group, a European telecom company with 11 million mobile customers.

But even 3G still leaves the iPhone an awkward fit into Japan and South Korea.

Then there are those pesky consumer laws. Belgium, Finland and Italy restrict carriers from offering exclusive, or even favored, access to a particular device. Apple has grappled with similar policies in France and Germany. Its solution--an "unlocked" phone that can be used on any mobile network for a hefty premium--has drawn criticism from some consumers.

World domination isn't here yet. But Apple's persistence and marketing muscle mean the sun may never set on the iPhone--some day soon.

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