The iPhone and new iPod: what's Apple's idea?

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The long-awaited launch of Apple's iPhone in the UK will raise the pulses of gadget geeks and fashionistas across Europe who have eagerly awaited the appearance of the handset since it was released in the US over the summer.

The handset will undoubtedly fly off the shelves in the first few weeks that it is available, with Apple set to reveal all tomorrow at a press conference at its London store.

Yet the recent launch of the iPod touch – which shares many features with Apple's first handset – has thrown the cat among the pigeons in the mobile phone industry.

Although the identity of the operators who have won the right to sell the iPhone exclusively in Europe is yet to be confirmed, it is likely that those executives who have signed deals with Apple were less than pleased with news that the new iPod range would be available before Christmas.

Although the iPod touch has no phone capability or web browser, its touch-screen functionality and wifi connectivity position it as a similar device – if not a dead ringer in look – to the iPhone.

Ben Wood, a research director with CSS Insight, said: "I think the product will have come as a shock to the network operators that have secured exclusive rights to sell the iPhone in Europe. The iPod touch risks dampening demand for the iPhone. Users will quickly realise they can purchase the iPod touch and get all the benefits of the iPhone – plus an additional 8 gigabits of storage – at the same price, without having to commit to a lengthy contract term."

Mr Wood added: "History has shown that doing deals with Steve Jobs [Apple's founder] inevitably results in Apple being the ultimate winner. The operators that have decided to stock the iPhone now face the prospect of having a product that is considerably less attractive than it was when the deals were signed with Apple."

With Apple keen to capitalise on the hype surrounding its new device and mobile operators desperate to get hold of the world's most talked-about handset, it is no surprise that the Californian computer company has driven a hard bargain. One industry source said that the mobile operators even have to buy special display stands at an "exorbitant price" to sell the handsets in their own shops. "Apple is going to claw for every bit of revenue they can get," the source said.

Although it has yet to be confirmed, Apple is widely expected to reveal tomorrow that O2 has won the rights to sell the iPhone in the UK in the run-up to Christmas, with Orange and T-Mobile signing similar deals in France and Germany respectively.

Peter Erskine, chief executive of O2, said that he does not believe the iPod touch will damage demand for the iPhone, which has shifted a million units since it was launched in the US in June. "Anything that creates a little sizzle in that space has to be positive," he said.

Although Apple's entry into the mobile phone market has created a frenzy of excitement, the computer company is likely to remain a niche player. It may have sold a million devices in 10 weeks, but Nokia sells a million mobile devices every day, and has launched its own music download service to rival iTunes. There is also suspicion that Apple's decision to slice $200 off the price of the iPhone in the US reflects lower-than-expected demand for the handset.

It is the first mobile device that Apple has developed, although it backed the ROKR handset launched by Motorola in 2005, which despite being the first mobile phone to carry iTunes proved to be a dud.