There’s much confusion and discussion today about Apple selecting two operators to sell iPhones in Italy – Vodafone and Telecom Italia. Plenty of observers are pointing to a huge shift in Apple’s exclusivity strategy, or debating whether the iPhone is uncompetitive in the Nokia-rich European marketplace.

But in my opinion, there’s a much simpler explanation, especially missed by most of my counterparts on the other side of the Atlantic.

It’s just about prepay.

In the US, prepaid mobile phone services are viewed by many with disdain – they’re for socioeconomically disadvantaged people, or migrants without US bank accounts or who fail credit checks. Americans seem to think that all real mobile users are always happy to be tied into 2-year cast-iron contracts with monthly subscriptions.

I’ve lost count of the number of conversations I’ve had with people from the US who are genuinely amazed that most of the world’s mobile subscribers use prepay. And in many cases this is not because they have to use prepay because of economic circumstances, it’s because they prefer to. Many simply do not want to be “on contract” because they want the flexibility to top-up their account and control their spending. Some like to swap SIMs to play tariff arbitrage. Many want multiple phones and numbers, and not need to maintain ongoing accounts for each. Some want to buy a phone separately to the service component. Or because the contract-based plans don’t meet their needs in terms of bundles. Some just do it because they’re used to it – it seems natural.

Take me for example. As well as a couple of contracts, I have a prepay SIM from H3G because it gives me cheap mobile data on unlocked phones. And I regularly get prepay SIMs to use when I travel - if I'm in Mozambique or Bolivia or wherever, why not spend just $3 for a SIM to make local calls to hotels or restaurants? What's the point in routing calls back via London & paying huge roaming charges for the privilege? I also prepay for travel in London on my Oyster card, and I prepay for beer in the pub, rather than after I've drunk it, or via a monthly subscription. (Hey, now that's an idea...)

But people from the US tend to think there’s some kind of stigma attached to prepay, rather than it just being the way it’s done, no big deal.

It’s similar to the way that the rest of the world looks at the US and is amazed by the preponderance of phones in hip holsters – which in our eyes have an equivalent social stigma. But for people in the US, wearing your phone on a Batman-type utility belt seems as acceptable for a trader on Wall Street or a fashionista on 5th Avenue as it is for the geekiest nerd in the IT department – it’s just the way it’s done, no big deal.

And so to Italy and the iPhone.

Vodafone Italy has 22.8m customers, of whom 91.2% (about 20m) are prepaid customers.
Telecom Italia Mobile has 36.3m subscribers, of whom 85% ( 30.8m) are prepaid.

And many of the contract customers are actually corporate users, or even subscriptions for 3G modems or embedded M2M modules. While plenty of prepay customers have shiny, high-end smartphones.

In other words, the number of individual consumers in Italy who would buy an iPhone, together with an 18/24-month contract, is roughly twelve. Apple has obviously realised that its much-vaunted monthly revenue-share business model isn’t going to work very well in Italy, especially if it only has one carrier as a route to market. And given that prepay top-ups make it is almost impossible to identify which phone they are used with, I can’t see how Apple is going to get a revenue share on prepay that way either. Far better to try and persuade Italian consumers to pay full-whack retail price for the device, and then use it with the prepay SIM from the operator of their choice.

This is also quite possibly why Vodafone’s announcement yesterday was so terse – Apple is probably going to have to reinvent its whole revenue model for the iPhone in prepay-centric markets, and somehow communicate that to its investors. And face down its current contract-based partners wincing about paying Mr Jobs a 10% tax for the privilege of selling his device.

And I’d guess Apple probably wants Vodafone to keep quiet about exactly how this will play out in other prepay markets like India, Egypt, Turkey et al.

Original Source: Dean Bubley's Disruptive Wireless