All Things Digital

The best laid plans of mice and men “gang aft agley,” as they say. iPhone carriers as well, apparently. Because British wireless carrier O2 claims it was well prepared for the iPhone pre-order event that felled its Web site earlier this week. It just wasn’t well prepared enough. In an email to customers today, O2 apologized for the failure of its online ordering system, explaining there was little it could do to prepare for the 13,000 orders per second that overwhelmed it. That’s right: 13,000 orders per second.

“We had invested heavily to add a huge amount of additional capacity, 250 times its normal rate, and backup systems,” O2 said in a statement. “We tested this carefully in advance. The massive simultaneous crush exceeded even our worst-case assumptions. Demand was at 13,000 orders per second. Frankly, we have to admit we just weren’t prepared for this unprecedented level of demand. No website is.”

O2 Sees Unprecedented Demand for iPhone 3G

O2 today announced that Apple’s highly anticipated iPhone 3G will go on general sale from 8.02 a.m. Friday in O2, Apple and Carphone Warehouse retail stores. To ensure fairness, O2 will sell the device on a strictly first-come, first-served basis to both new and upgrading customers in all retail outlets.

Demand for the revolutionary device is already at unprecedented levels, far in excess of the original iPhone. ‘We’ve never seen any mobile device create the excitement and demand of the iPhone 3G,’ said Ronan Dunne, CEO of O2 in the UK. ‘We want to ensure that everyone who wants an iPhone 3G can get one, so we’ll be working with Apple to continually replenish our supplies throughout the summer.’

This morning, customers who had pre-registered their interest in iPhone 3G were given the opportunity to purchase via O2’s online shop (http://shop.o2.co.uk) a limited stock of devices that had been set aside. The response was so great that the online store completely sold out of iPhone 3Gs within just a few hours. Though O2 had invested several million pounds to increase the order capacity of the site (with order processing capacity increased by over 250 times its normal rate), at times the site still couldn’t process the sheer weight of demand.

Details of when new supplies of iPhone 3Gs will be available via the O2 online shop will be updated regularly via the website.

Business customers can, from today, also start placing orders for iPhone 3G through O2 business channels. Delivery timings will be communicated when an order is placed.

iPhone 3G combines all the revolutionary features of iPhone with 3G networking that is significantly faster than the first-generation iPhone. The device has built-in GPS for expanded location-based mobile services, iPhone 2.0 software (which includes support for Microsoft Exchange ActiveSync) and runs the hundreds of third-party applications already built with the recently released iPhone SDK. These can be accessed via iTunes.

The 8GB iPhone 3G will be available for free to customers opting for the £45 or £75 tariffs and £99 on the £30 and £35 per-month tariffs. The 16GB model will cost £159 on the £30 and £35 tariffs, £59 on the £45 tariff and it will be free on the £75 tariff. All customers will continue to receive unlimited UK data browsing over O2’s mobile network and unlimited access to over 9,000 Wi-Fi hotspots through both The Cloud and BT Openzone.

Existing iPhone customers can upgrade early to the iPhone 3G through O2 channels by re-signing a new 18-month contract, taking advantage of the same great offer as new customers. They will then be able to give their existing 2G iPhone to a friend, family member or colleague, who can transfer onto an iPhone tariff if they are an existing O2 Pay Monthly or business customer, stick in their existing O2 SIM and buy the appropriate Bolt Ons for unlimited data, or buy an iPhone Pay & Go SIM card from 11 July offering unlimited data and unlimited Wi-Fi access to The Cloud and BT Openzone hotspots for £10 per month. Full information is available on o2.co.uk/iPhone.

The iPhone 3G will launch on O2 Pay and Go (Prepay) in time for the Christmas shopping period, with pricing details to be confirmed closer to launch.”

If you’re going to offer a device as eagerly anticipated as the iPhone 3G for pre-order online (and with courier delivery to boot), you might want to prepare for it with some server redundancy and fault-tolerance checks. Otherwise, you might find yourself in a situation akin to the one in which O2 found itself today.

The British wireless carrier began began offering the Apple iPhone 3G (AAPL) for pre-order in the UK today at 8 a.m. Within moments, its Web site was overwhelmed with traffic and taken offline for “maintenance.” A short while later the site was back online, and by early afternoon O2’s pre-order stock was depleted. A lot of customers who’d attempted to purchase or upgrade to the device had no idea whether or not they had actually managed to do so.

Suffice to say, O2 customers were not at all pleased. “I tried for 3 hours today to complete the upgrade process online and have several update codes but the process was incredibly slow and through each page it either loaded with errors or else timed out,” wrote one customer in a post to Apple’s discussion forum. “This was a total farce, a complete waste of my time, and a bitter disappointment. I will expect O2 to have a 16Gb iphone reserved for me at my local store on production of the upgrade code.” Wrote another, “I feel disillusioned and despondent (I know it’s only a phone), but the experience of buying the original iPhone at the London Apple Store was a joy, I was made to feel valued as a customer. Now I just feel used and abused, like the morning after a particularly bad one-night stand. Thanks Apple for choosing such a lousy bedfellow in the UK.”

Apple (AAPL) is expanding its iPhone empire with near Alexandrian initiative.

Today, the company struck an extensive deal with France Telecom’s (FTE.PA) Orange wireless carrier to distribute the device in more than 10 markets in Europe, the Middle East, Africa and the Caribbean.

Orange, which became Apple’s exclusive carrier partner in France last year, will soon sell the iPhone in Austria, Belgium, the Dominican Republic, Egypt, Jordan, Poland, Portugal, Romania, Slovakia and Switzerland, as well as the company’s African markets.

Interestingly, a few of these countries already have carriers with iPhone distribution agreements. It would seem then that Apple is indeed moving away from the exclusive iPhone distribution arrangements it’s been inking, as many suggested last week when Vodafone (VOD) and Telecom Italia (TI-A) both announced plans to bring the iPhone to Italy.

In any event, Apple’s deal with Orange will expand the iPhone’s reach to about 40 countries and will effectively quadruple its total addressable market. “Currently Apple’s total addressable market includes 153 million subscribers in six countries with AT&T (T), T-Mobile Germany and Austria, O2, and Orange,” Piper Jaffray’s Gene Munster observed in a research note today. “These announcements increase those numbers to 575 million subscribers in 42 countries, including recent agreements with Vodafone, SingTel, America Movil (AMX), Swisscom and Orange. … To give some context to these numbers, Apple sold 3.7 million iPhones in 2007 into a total addressable market of 148 million subscribers (or 3% penetration). Taking the recent carrier announcements into consideration, we are modeling for Apple’s penetration rate to remain at 3% in 2008 and double to 6% in 2009.”

Only Apple would launch a 2.5G device in a country where 20% of mobile-phone users own 3G-enabled handsets and expect them to downgrade their wireless experience and pay a premium for doing so.

Apple CEO Steve Jobs confirmed yesterday that the company’s iPhone will go on sale in Britain Nov. 9 and be carried exclusively by Telefonica SA’s O2 division (which was apparently willing to give up a kidney as well as its first born to win the deal).

As in the states, U.K. iPhones will run on a 2.5G EDGE network. An odd choice, given the prevalence of 3G-enabled phones in the country and O2’s British EDGE penetration, which apparently hovers around a paltry 30%.

Speaking at London’s Regent Street Apple Store, Jobs defended Apple’s decision to support EDGE and not 3G, saying to do otherwise would compromise the iPhone’s battery life. “The 3G chipsets are real power hogs,” said Jobs. “Most phones now have battery lives of two to three hours, and that’s due to these very power-hungry 3G chipsets. Our phone has 8 hours of talk-time life. That’s really important when you start to use the Internet and want to use the phone to listen to music. We’ve got to see the battery lives for 3G get back up into the five-plus hour range. Hopefully we’ll see that late next year. Rather than cut the battery life, we’ve included Wi-Fi and sandwiched 3G between EDGE and a more efficient Wi-Fi.”

And that appears to be Apple’s party line as it continues its iPhone march across Europe. This morning, Apple announced T-Mobile–the only network operator in Germany to offer EDGE throughout its entire GSM network–as the exclusive German carrier of the iPhone. Presumably it will announce a similar deal with France Télécom SA’s Orange in the days ahead.

Correction: Because of an editing error, an earlier version of the first paragraph of this post incorrectly referred to a “2.5-gigabyte” device instead of 2.5G device (as in “generation”) as the author intended.

Note: John Paczkowski is on vacation and won’t be writing or posting videos until he returns Monday.

To keep you abreast of tech news while he’s away, we’re compiling a daily digest of 10 must-read tech stories. We’re calling it the Tech 10 and it appears below.

1. As inevitable as death and taxes: YouTube, the world’s No. 1 video site, will begin placing ads in its videos, All Things Digital’s Kara Swisher reports. The animated advertising will appear no earlier than 15 seconds into a video, overlaid on the bottom fifth of the screen. Citing viewer revulsion, a YouTube product manager told NewTeeVee the site will not use the dreaded preroll or postroll.
2. Apple, leveraging its deal-brokering with AT&T stateside, has signed up European partners for iPhone sales and service. A report in the Financial Times notes that three telecoms–T-Mobile in Germany, Orange in France and O2 in the United Kingdom–will fork over 10% of the revenues made from iPhone calls and data transfers.



3. Stargazing earthlings will get a new perspective today, as Google unveils Sky, its view of the heavens from Earth. The New York Times reports that users will be able to zoom around to view millions of stars and galaxies, much as they do on a smaller scale with Google Earth.
4. Henri Richard, the very visible top sales officer of Advanced Micro Devices, is leaving the troubled chip maker. Confirming an earlier report on Hexus.net, Tom Krazit of CNET describes the executive vice president’s departure as a “significant development in what has been a disastrous year for AMD,” precipitated by its postponement of Barcelona, its quad-core server chip.
5. Regrouping years after the dot-com implosion, the online-trading business is in for some consolidation now that TD Ameritrade Holding Corp. and E*Trade Financial Corp. are holding merger talks. The Wall Street Journal is reporting that the potential union could create a single dominant force in what has been seen as a highly fragmented industry, with many small companies in the competitive fray.
6. Spotting potential in the social-networking trend, U.S. spy agencies plan to develop an information-sharing portal based on MySpace and Facebook. According to the Register, taxpayers, rather than advertisers, will foot the bill for the spook Web site.
7. Darkening the cloud of suspicion hanging over electronic-voting machines, California’s secretary of state has accused Election Systems & Software of selling about 1,000 uncertified electronic-voting machines to five California counties in 2006, according to IDG News Service. The state has instituted new security standards for all electronic-voting machines after a review sharply criticized the technology.
8. Reconsidering the upswing in PC gaming, Microsoft is bringing back its SideWinder line of peripheral equipment, starting in October with a new mouse, reports the Seattle Post-Intelligencer. The device will cost $79.95 and includes a wider scroll wheel, special buttons and other doodads for gameheads.
9. Joining the competition for the thinnest TV screen, Sharp is unveiling a 2-centimeter thick LCD screen. PC World reports that the prototype TV will get its signals via a high-speed wireless link, eliminating the need for a cable.



10. Talk about a cybervirus. Epidemiologists have found that studying an imaginary epidemic in an online game world could provide valuable clues to coping with the real thing. Writing about research published in the September issue of Lancet Infectious Diseases, ABC News reported that researchers from Tufts and the University of North Carolina are serious in applying the lessons of online epidemics (in particular, the “corrupted blood” that spread on World of Warcraft in 2005) to disease-control efforts worldwide.

–posted by Associate Editor John Sullivan

The battle for rights to bring the iPhone across the Atlantic appears to be winding down. According to current speculation, France Telecom’s Orange, Deutsche Telekom’s T-Mobile and Telefónica’s O2 will be given the privilege of distributing the device in France, Germany and the United Kingdom, respectively–though O2 denies it’s sealed the deal.

Apple had initially planned to sign a distribution deal with a single pan-European operator, leading many observers to conclude that Vodafone–Europe’s largest carrier–was the front runner to secure exclusive European rights to the iPhone.

It’s not yet clear why things don’t seem to be playing out that way, although it may be that Apple’s terms were a bit too onerous for Vodafone. Certainly, it’s not difficult to imagine Vodafone CEO Arun Sarin wincing over the AT&T-style arrangement that is rumored to give a portion of monthly subscription revenue to Apple.

One last point to make here: Contrary to current speculation, people close to the situation said European iPhones will not operate on 3G mobile networks of companies such as Vodafone, but on their slower 2.5G counterparts–just as they do in the U.S.