Skip to main content

T-Mobile Jacks Up German iPhone Price

The device will sell for nearly $1,500 there to answer a legal ruling.

Tuesday's

silver lining turned to gold Wednesday as Germany's T-Mobile answered its

Apple

(AAPL) - Get Apple Inc. Report

iPhone legal setback with a big price markup.

The wireless unit of

Deutsche Telekom

(DT) - Get Dynatrace Inc. Report

said it will sell unlocked, contract-free iPhones for 999 euros, or $1,481, in an effort to honor a court injunction and compensate for the loss of potential revenue.

The move comes a day after a German court sided with

Vodafone

(VOD) - Get Vodafone Group Plc Report

and told T-Mobile to stop selling so-called locked iPhones under the requirement that users sign two-year contracts.

Some investors saw the ruling as a possible door opener that would break the "lock" -- the exclusive contract structure Apple has with its select European partners -- and help boost iPhone sales abroad.

T-Mobile says it will appeal the injunction and will also explore the possibility of a countersuit against Vodafone seeking damages.

The news seemed to threaten Apple's unique royalty and revenue-sharing arrangement with its telco partners. In exchange for exclusive iPhone selling rights, phone companies agreed to share a percentage of the monthly subscription revenue with Apple. It's estimated that Apple enjoys a 10% cut of the proceeds.

Scroll to Continue

TheStreet Recommends

The looming threat to Apple, however, is that European Union regulators may take a closer look at the legality of Apple's exclusivity deals if the German judge concludes that the T-Mobile arrangement is anticompetitive or somehow disadvantages consumers.

Such a scenario could cause Apple's other exclusive arrangements to unravel, ending the fees it earns from carriers. That would leave Apple financially exposed to the same competitive forces that have driven down the average selling price for the world's cell phone makers.

Beginning with the scuttled merger between

General Electric

(GE) - Get General Electric Company Report

and

Honeywell

(HON) - Get Honeywell International Inc. Report

in 2001, European regulators have taken bold steps against anything they perceive as anticompetitive. They've leveled billions of dollars in fines against

Microsoft

(MSFT) - Get Microsoft Corporation Report

, and they recently put Apple on their watch list. Some have called in question Apple's policies of charging different prices for iTunes downloads in different European countries, and whether tying iTunes downloads to the iPod is too restrictive.

For now, T-Mobile will sell the unlocked iPhone at the higher price. Observers note that the underlying cost of an iPhone is about $281, according to iSuppli. So the $1,481 markup, roughly five times the cost, is ample enough for T-Mobile and Apple to get a good portion of the revenue it would normally collect from an iPhone customer.

The iPhone's regular price from T-Mobile is 399 euros, or $591.85.

T-Mobile also says it will unlock all iPhones sold since Monday at the customers' request.

Apple shares were recently up $1.47, or 0.9%, to $170.40.

Staff writer Daniel Del'Re contributed to this article.