Apple 2.0

Covering the business that Steve Jobs built

Behind the Scenes: The British iPhone Deal

November 3, 2007: 9:44 AM ET

picture-25.jpgA week before the scheduled Nov. 9 release of Apple's (AAPL) iPhone in the U.K., the Daily Telegraph has published a long interview with Matthew Key, the O2 UK chief executive who negotiated the deal with Steve Jobs. The story offers an interesting perspective on the iPhone, Apple, and its CEO as seen through the eyes of a English businessman.

According to Key, it started with an early morning call on a wet Saturday morning from his boss, Peter Erskine.

" 'We've had a call from Apple,' said Peter. 'They want us to be in Cupertino in California on Tuesday'." Key, who runs the UK's largest mobile network operator, boasting 18m customers, didn't have to ask why.

Key showed up at Apple headquarters that Tuesday morning with two executives from Telefonica, O2's Spanish owner. They were ushered into Jobs' office. He was wearing his trademark jeans, black top, and trainers.

''He's a hugely impressive guy, hugely impressive guy," beams Key, remembering his first encounter with the quasi-legendary Apple founder. ''He clearly knows his stuff in a level of detail that for someone at that level is mindblowing, and he has a great incisiveness in terms of what the customer wants and needs in products."

Jobs and his henchmen wanted a single network partner but still didn't know how they were going to launch the iPhone in the UK; unlike Key, once Jobs had shown him the device.

''I played with it for two minutes and just thought, 'oh my God, this is leagues above anything I've ever seen before'," he gushes (to be fair, so do most people who've seen the device). ''If you see the photo functionality, watch videos on it on YouTube, or the weather, or just see the threading on the texting, or the visual voicemail."

Apple's representatives hammered out the deal with Key's team in Slough the following Saturday ''over Marks & Spencer's sandwiches." Key disputes as "rubbish" reports that O2 struck what one competitor called a "madly money-losing deal," signing over to Cupertino as much as 40% of monthly revenues. "''It's sour grapes," he said. "We don't sign bad deals." He did not offer any contract details, but said he was confident O2 would make money over the life of the contract, during which he expects 3/4 of British iPhone customers to come from rival networks.

One last, telling detail from Dominick White's Telegraph piece:

Key, very much a straight-talking bloke (albeit with a sentimental streak), admitted to Jobs that O2 would need to use Carphone Warehouse as a retail partner to maximise distribution.

His openness chimed with Apple, which it later emerged had already mystery-shopped all the networks' stores in the UK – something Jobs did for himself following a subsequent meeting with Key in London's West End. (link)

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Philip Elmer-Dewitt
Philip Elmer-DeWitt
Editor, Apple 2.0, Fortune

Philip Elmer-DeWitt has been following Apple since 1982, first for Time Magazine, and now on the Web for Fortune.com.

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