iPhone leaves its rivals hanging on

( FT ) - European consumers will have an unprecedented array of choice in mobile phones this Christmas as handset makers and mobile phone operators sharpen up their offerings to rival Apple's new iPhone handset.

Mobile phone operators without the iPhone on their portfolios are expected to heavily promote Sony Ericsson's new Walkman music phones, a new 8 megabyte version of Nokia's N95 music and internet phone, and Samsung's F-700, which has a large touch-screen similar to that of the iPhone.

Sony Ericsson's handsets are already the most popular devices in Europe for listening to music and browsing the internet, according to M;Metrics, the research company, and the new models coming out for Christmas will cheaper and faster than the iPhone.

Earlier this week Apple signed exclusive deals in with O2 in the UK, T-Mobile in Germany and Orange in France to bring the much-hyped music and internet-enabled mobile phone to the big three European markets on November 9, in time for the Christmas season.

Apple is expecting to sell 10m iPhones by the end of 2008, of which an estimated 3m are expected to go to European consumers.

However, analysts believe Apple could struggle in Europe because of the iPhone's high price and lack of a high-speed 3G connection to the internet. European consumers are used to getting their mobile phones free or at a sharp discount because operators heavily subsidise all handsets for customers on contracts. The deals for Apple's iPhone are not only unsubsidised but also include a revenue-sharing element.

In the UK, O2 has tried to ease concern over slow speeds by allowing iPhone users to connect to the internet via 7,500 WiFi hotspots. However, WiFi coverage is patchy outside big urban areas, and it is not clear whether there will be similar WiFi deals on offer in France and Germany.

Arun Sarin, chief executive of Vodafone, said lack of a 3G connection was one of the factors holding Vodafone back from a deal with Apple. He said he would love to see an iPhone with HSDPA, a 3G technology that allows very fast mobile internet access.

"In our case we are going to be patient and going to wait for the right device so we don't cause any customer confusion or customer disappointment," he told the Financial Times.

The phone's high price may also slow sales. The iPhone will be sold for ?269 ($534) in the UK, plus an 18- month contract of between ?35 to ?55. In Germany it will cost €399 plus a contract. Pricing for France was not announced but it is expected to be similar.

In contrast, on O2's website, 16 out of 18 handsets are free, and no other handset costs more than ?90. On Vodafone's consumer website all handsets are free with a contract of more than ?35 a month.

Analysts at Enders Analysis believe the pricing point of the iPhone will limit its appeal to "Apple aficionados and wealthy fashion victims". They point out that for the price of the iPhone, consumers in the UK could buy Apple's new iPod Touch, which has all the features of the iPhone bar the phone, for ?200, get a free N95 with many operators "and still have money left over for a trendy new shirt".

There are no signs operators plan to cut subsidies on other phones. As it stands, the revenue-sharing deal that Apple is understood to have signed with operators could be more expensive than subsidies.

Operators are thought to have agreed to give Apple at least 10 and possibly more than 30 per cent of airtimes revenue from iPhone users.

A number of mobile operators are understood to be in talks with Apple to broaden the iPhone's footprint in Europe. However, they are likely to be watching the Christmas battle to see if the much-hyped product will sell well enough to make the onerous terms worthwhile.

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