Tesco Lands Deal to Sell Apple iPhones

Tesco (TSCO.L) is turning the screw on rival mobile phone shops by offering the Apple (AAPL) iPhone in its stores and online over the coming weeks. The supermarket's telecoms division, Tesco Mobile, said yesterday that it would introduce the iPhone 3G and the latest 3GS model in the UK before Christmas as part of its joint venture with the network provider O2 (TEF).

Tesco is the fourth company to sign a deal to sell iPhones in Britain following O2 and Orange (FTE), which already sell the iconic handset. Vodafone (VOD) has plans to offer the device from the new year but has yet to agree a date.

A spokeswoman for Tesco Mobile said: "It is a coup for us. Our absolute aim is to get this into stores and online before Christmas."

Although a launch date has not been confirmed, Tesco Mobile's iPhones will be offered on contract and pay-as-you-go deals. The spokeswoman hinted at a robust pricing policy, saying: "We want to bring a bit of Tesco value to the iPhone on tariffs. It will be slightly different and is not going to replicate what is already out there."

Tesco Mobile's move is a blow to Orange and Vodafone's iPhone sales prospects in the UK, given that 42 million visits to Tesco stores are made each week, including multiple trips by individuals. The grocer also confirmed that customers buying and iPhone and tariffs at Tesco will be able to receive Clubcard loyalty points.

"Obviously, with all our tariffs, handsets and top-ups on Tesco Mobile customers get Clubcard points and the iPhone will be no different," the company said. Tesco has 16 million Clubcard holders in the UK.

The Tesco move mirrors a much earlier announcement by Wal-Mart to sell the iPhone in the US. Carolina Milanesi, a research director at Gartner (IT), said: "This opens the iPhone up to a different clientele so it makes sense for Apple and O2. You are probably going to see something more aggressive on the tariff side rather than on the hardware side. It will probably put a little bit more pressure on the competition but it will depend on what margins you want to make." While sources played down speculation that Tesco's iPhone deal might have been influenced by an over-supply of the phones, Ms Milanesi said: "There is some inventory in the UK market no doubt, but you are not talking about millions."

Tesco Mobile is a separate, joint venture from the supermarket and falls under Tesco's retailing services division. Yesterday, it said that profit from the telecoms business grew over the 26 weeks to 29 August. The number of Tesco Mobile customers rose by 10 per cent to 1.9 million in a declining pre-pay market. A spokesman said: "We've made good progress rolling out our phone shops, with 59 now open and 100 planned by year-end. The phone shops are transforming our ability to sell products that require an assisted sale, particularly contract mobile phones."

Last week, Tesco fleshed out the strategy for its retailing services business, notably a major expansion of its telecoms operations. The grocer will offer bundled broadband and home phone packages for the first time, as part of a five-year deal with Cable & Wireless. Lance Batchelor, chief executive of Tesco Telecoms, said it would double its number of in-store phone shops to 200 by the end of 2010. Its retailing services division includes Tesco Bank, which will offer current accounts by the end of next year.

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