iPhone: The tri-carrier battle for Britain begins, network capacity to buckle, strain

The battle between Orange, Vodafone and incumbent operator, O2 over iPhone sales has begun, and it looks likely network strength and extra services will be key to how this UK Apple story shapes up.

O2 today began unlocking iPhones for existing contract and Pay-As-You-Go (PAYG) customers, warning that the process can take up to 14-days, and charging PAYG owners a £15 fee for the privilege. Once the device is unlocked users can insert the SIM of another operator.

O2 has also issued a nest of statements regarding its UK experience with the iPhone, confirming it to be the “fastest-selling device ever on O2”, and admitting to now holding one million iPhone customers.

The key element to the company’s findings is in the impact on the carrier’s network performance - which could be seen as a warning to Orange and Vodafone who currently tout the strength of their network. “The O2 network has seen data traffic increase 20-fold in the last 12 months, doubling every four months,” the company warned.

In a final series of rearguard actions, O2 has begun offering three months of free Sky Mobile TV to UK iPhone users, granting access to Sky Sports 1,2 and 3 as well as Sky Sports News, Sky Sports Extra, Sky News, At The Races and ESPN, Distorted Loop reports.

"In less than a year we've already seen millions of downloads of Sky's various iPhone apps," said David Gibbs, the general manager for mobile at Sky. "Now, by launching our new Sky Mobile TV app, we are able to combine the demand for great live TV on the move with the quality of experience offered through the iPhone and iTouch."

O2 is also offering free home broadband to iPhone customers who buy the Internet Tethering Bolt-on to use their handset as a wireless modem for a laptop.

There’s an awful lot to play for. Orange today also began selling the iPhone into the UK market, causing research analysis firm Mediacells to issue estimates claiming the network will generate £795 million in revenue from its iPhone customers by the end of 2010.

Brad Rees, CEO of Mediacells, said: “Selling the iPhone remains the best way for operators to get customers to part with more cash, even in a recession.”

“The fact that Orange has not undercut O2’s tariffs with their own iPhone offering just goes to demonstrate Orange’s confidence that they can generate new customers and reduce churn through selling the iPhone.”

Prompted by the growing competition between Orange and O2, Carphone Warehouse CEO Andrew Harrison believes his retail network will sell its millionth iPhone into the UK by the end of the year.

Quietly waiting in the wings, third UK competitor, Vodafone has begun sending emails to those who pre-registered interest in the iPhone in which it points out the speed and breadth of its network in comparison to the other telcos.

“Vodafone reckons its own speeds show O2 and Orange lagging behind. When watching a 10 minute YouTube clip through the iPhone, Vodafone says its results left rivals in the dust,” a report said.

Ultimately, network strength may end up being the deciding count for iPhone dominance in the UK and other markets. O2’s experience with the iPhone has caused major problems to its network, as users aren’t shy of using data.

“The O2 network has seen an 18-fold increase in data carried over the network in the last year and traffic continues to double every three months.” said Matthew Key, head of O2. “This level of throughput increase would cause pressure on any business. To put this into some context, watching an average YouTube video on a smartphone can be the network equivalent of sending 500,000 text messages.”

O2 is investing $30 million to address capacity issues in London alone, he said.