iPhone Launch Date and Price Set for UK, with Murky Unlimited Data Plan

Ian Hobson - 12:45am Sep 26, 2007 PST
Guest User

Glenn

Your understanding of VAT is I think a bit off the mark.

First, VAT on the iPhone does not account for £35, but for over £40.
To work out the cost BEFORE VAT, you must divide the final price by
100% + VAT rate (117.5%). You will then get the price without VAT
(£228.94) (add 17.5% back on and you'll see you get to £269).

In the UK and Europe as a whole, ALL prices MUST be quoted INCLUSIVE
OF VAT. This is completely different in the US where sales tax is
added on at the point of sale.

So, the difference in price comes down to £229 versus $399, at least
in terms of what Apple gets. (You are not correct in suggesting that
somehow all the VAT is not due - if you work out how goods are
produced, you will find that the final VAT price is what is paid by
the last company in the chain, but they are only able to claim back
the VAT they have paid along the way in making that good - that's why
it's "value added").

A company buying an iPhone however will be able to claim the VAT back
on that as it becomes part of THEIR value-added. So, to a business,
the cost of an iPhone is in fact £229.

Then there is the exchange rate impact. It is not quite fair to use
the exact exchange rate. Apple will buy goods in US dollars from
China, so it needs to protect itself against currency movements.
Otherwise it would have to change the price of the iPhone in the UK
everytime the exchange rate moved. Instead, Apple tends to rebalance
prices when a new product is released (that's why iPods here have
gone down A LOT as exchange rate moved from $1.50 =£1 to more like $2=
£1, and MacBook Pros are better value here than ever). It presumably
may pay on the financial markets for this protection by buying futures.

Then Apple has SOME costs in Europe it doesn't have in the US. Our
economies are smaller, and less efficient. Rent costs are
astronomical (office costs where Apple's store are will be well over
$200 per square foot per year!). Labour costs and labour taxes are
higher. The EU insists on 12 months warranty, so that makes warranty
costs higher. Language translation, consumer rights, legal work in
EVERY EU country make distribution costs higher. So, add in exchange
rate protection, and all these things, and a 10% or so add-on is
probably pretty reasonable.

Contrast this with Microsoft, whose Office and OS products in the UK
cost essentially the same in £ as they do in $ (try Amazon.com
and .co.uk for comparison). Admittedly if you remove VAT, then the
rate is more like $1.20 to £1. But we are REALLY being screwed by
the MS monopoly here.

Apple competes in a competitive market - here and in the US. If it
overcharges versus it's competitors, it will lose out. I think
you'll find it prices as competitively as its competitors (eg on
selling music players).

Finally, remember two other things here. VAT is also included in the
phone tariffs. So a £35 monthly tariff is in fact under £30.
Remember too that mobile phone users do NOT pay for incoming minutes
and do not have these in their plans. For good or bad, the person
who calls a mobile phone pays (see Skype rates for instance as to the
effect this has!). So, it is difficult to compare minutes on plans.
The wi-fi service included also makes comparisons more difficult.

Personally, I find the O2 plan just about attractive (and I am
cheap), and compelling in a number of ways. My Nokia N80 is
absolutely the worst Nokia phone I've had - riddled with bugs which
are not fixed by firmware upgrades. The browser is unusable and
email would be a joke. So, it may have 3G, but it's unusable. And
3G has it's own problems - switching between 2G and 3G for instance.
My partners 5 year old tiny Nokia has much better reception than
mine. I pay £25 for 120 minutes on Orange today, and I paid £100 for
the phone a year or so ago on a 2 year contract. No texts, but there
are "free trial" data use etc.

I do agree with you that the "unlimited" is very murky -
unfortunately it is very common here for both mobile and broadband,
and should be stopped.

Hope this clarifies some things for you. Keep up the goodwork at
tidbits.

Ian