Updated from 6:43 a.m. EDTApple ( AAPL - Get Report) laid out plans Tuesday to launch the iPhone in the United Kingdom, marking the first step in its broader plans to mine Europe for sales as the continent becomes increasingly vital to the company's growth. At a press conference in London, Chief Executive Steve Jobs said Applewill begin selling the iPhone on Nov. 9 through an exclusiverelationship with the carrier O2, a subsidiary of Spain's Telefonica ( TEF - Get Report). "We're thrilled to be partnering with O2 to offer our revolutionaryiPhone to U.K. customers," Jobs said at the conference. "U.S. iPhonecustomer satisfaction is off the charts, and we can't wait to let U.K.customers get their hands on it and learn what they think of it." Apple is following the outlines of the game plan it sketched out when executives told analysts during a recent conference call that the company would begin selling the iPhone in major European markets during the current quarter. The company is hoping that the regional popularity of the iPod and iTunes music service has seeded local markets with demand for the iPhone and the iMac as it opens new stores across the continent. "Apple is pursuing a multipronged strategy and the iPhone is just oneweapon in its arsenal," said Fati Naraghi, head of technology researchat U.K.-based Newton Investment Management, which holds Apple shares.
Until now, Apple has taken tentative steps to reach the European crowd.Only 11 of Apple's nearly 200 stores are in Europe, and those areconcentrated in the U.K. But the iTunes music service is available in the native languages of 22countries around the world, most of which are in Europe's affluentregions. Sales from Europe accounted for 23% of revenue and 30% ofoperating profit in the first nine months of the fiscal year. Over that period, European sales jumped 33%, compared with 23% in the U.S. Operating profit in Europe more than doubled, vs. a 60% gainin the U.S. Sales in Japan, meanwhile, contracted, underscoringEurope's growing importance. The launch of the iPhone in Europe comes as the device is enjoyingsuccess in the U.S. Apple sold its 1 millionth iPhone well ahead ofschedule, and it has become the best-selling multimedia phone, or"smartphone," in the U.S., according to data tracker iSuppli. The company is ramping up production to meet increased demand after itslashed the price of the iPhone by 33%, or $200, in the U.S. Still, selling iPhones in Europe will be more challenging. Europeans, whoare generally savvy users of mobile data features, may balk at theiPhone's slower "Edge" network. Most European carriers offer phonesrunning on faster "3G" networks for easier Web surfing. Europeans can typically use the same phone with different carriers,something Americans cannot do. They might find it stifling that theiPhone works only on a single carrier's network -- though hacks have already been devised to circumvent that restriction.
Apple is also dueling with antitrust regulators from the EuropeanCommission, which has just emerged battle-hardened from
a victory over Microsoft ( MSFT). Apple has resisted the Commission's calls for it to unlock iPod sothat consumers can use them with music services other than iTunes. However, the company is just as unlikely to let the iPhone work with other musicservices, stoking regulators' ire. In Europe, Apple will butt heads with Finland's Nokia ( NOK - Get Report), the world'slargest handset maker. Nokia has less than 10% market share in theU.S., so the iPhone is largely untested against the Finnish company'srange of multimedia devices. The iPhone "doesn't need to be the dominant product in order to be enormously successful," says Kirk Kim, portfolio manager atTransamerica Investment Management. "Apple needs to get into newmarkets, and the biggest upside comes from penetration into Europe andpotentially Asia." When factoring in generous payment terms from AT&T ( T - Get Report) and now O2, Kim says that the gross margins on the iPhone approach 100%. That means that even if the iPhone isn't among the hottest-selling phones in the U.S. and Europe, it will still make a sizable contribution to Apple's sales and profitability.