The EU Stabs Apple in the Back

First Qualcomm (QCOM), now Apple (AAPL). Remember the GSM vs CDMA phone standards wars some 15+ years ago? The European Union [EU] at that time turned against Qualcomm in favor of the Nokia (NOK)-Ericsson (ERIC)-Alcatel (ALU)-Siemens (SI) backed GSM standard, mandating it in Europe and therefore limiting what would have been an even greater potential for Qualcomm.

Fast forward some 15+ years, and they’re baaack! The EU is now mandating that all cell phones be compatible with 3rd-party MicroUSB chargers by January 1, 2012. I first wrote about this subject on SeekingAlpha on December 24, 2008, and this development is now reaching its final stages of lawmaking in Europe.

This new EU mandate isn’t a big deal at all for essentially every cell phone maker in the world, including Nokia, SonyEricsson (SNE), RIM (RIMM), Samsung, LG, HTC and Motorola (MOT), because they are in most cases already well underway of implementing the MicroUSB standard in all of their products. Just walk into your neighborhood AT&T (T), Verizon Wireless (VZ), Sprint (S) or T-Mobile USA store, and look for yourself – we will probably approach 90% MicroUSB exiting this year.

For Apple, however, this represents an ugly inconvenience. The iPhone uses Apple’s proprietary 30 pin connector, and there is a vast jungle of devices and docks built around this engineering decision. Therefore, it isn’t so easy for Apple to “just switch” to MicroUSB as it was for all the other cell phone makers. Apple at this point has two options:

1. Simply rid itself of its 30-pin connector in favor of MicroUSB. Most people seem to suggest that this is as unlikely as an Obama budget cut. Apple wouldn’t want to jettison its accessory ecosystem.
2. Add a MicroUSB connector elsewhere on the device, presumably on top or on one of the sides. This appears more likely. It does, however, impose cost and an engineering problem with all sorts of ramifications, including aesthetics. Apple would do this kicking and screaming.

It has been suggested that there is a third way for Apple to comply with this new law. That would be to offer a 30-pin to MicroUSB adapter. This has the obvious advantage of not dealing with the painful two alternatives listed above. However, it has two deficiencies: (1) One more thing to carry and (2) It’s not clear whether this would comply with the EU mandate. I think it would be unlikely to comply, because it would be against the spirit of standardization and would require a piece of equipment that would largely negate the purpose of the law. The EU would also seize the opportunity to make life difficult for Apple by interpreting the EU ambition in this way, thereby further favoring their home area companies such as Nokia.

For Apple, “The European Problem” also becomes a global problem, because Apple doesn’t want to design two different iPhones – one for Europe and one for the US. Apple will eventually add more models, but this is an unnecessary degree of duplication it will not want to engineer.

Qualcomm more than survived the EU’s attempts to make life difficult for it, many years ago. Likewise, Apple will more than survive this attempt as well. That said, this represents a road bump in Apple’s product road map, of which I have not heard much to date. It’s over a year into the future, and whatever Apple decides to do, I don’t expect an implementation until June 2010 at the earliest.

There are many political ironies in this story. First and foremost, this is part of an industrial policy in the EU. We are being told day in and day out that industrial policy is such a good thing, despite that it’s been proven to be one of the greatest disasters of mankind. Now, Washington DC gets a taste of its own self-defeating medicine.

Another irony is that Apple, of course, is a product of as much of an industrial policy-free entrepreneurial environment as it gets. If Apple had been run out of Washington DC, it would have looked like the US Post Office competing with FedEx. Instead, Apple has proven itself to be perhaps the greatest innovator of its kind, yielding more success than imagined years ago precisely because of the lack of any government mandates deciding its business. Walk into any Apple Store, Mr and Mrs America, and you will find that Apple offers its own insurance policy for some $99 per year (“AppleCare”), which is completely privately funded and completely unregulated. And customers love it.

Disclosure: I’m long RIMM, AAPL and QCOM. I’m short NOK.

Comments

[mollytjm:]

very good article. yes, just a bump in the road. Apple will come up with some way to do this. it seems that if a small adaptor came with the iPhone for this market, maybe they could get around it until they could integrate it. no one innovates as fast as Apple, so it'll be interesting to see what they do.

Jun 30 10:09 AM

[nishiko:]

I think this is a great idea, because it's critical that countries take on environmental leadership and responsibility. This universal smart charger standard is an incredible idea... the cost/benefit ratio is exceedingly high in favor of the benefit. I'm glad the EU is taking environmentally responsible steps like this, as most other countries in the world seem unwilling to for whatever reason. And as you said, best of all, what they do often forces the same changes world-wide just on an economies of scale reason for most products. This only causes short term pain for some companies, but holds a great deal of long term rewards.

Jun 30 11:04 AM

[Drew Dillman:]

In general, standards help capitalism function more efficiently by providing a single design space in which companies can and indeed must compete to win.

Every competitor wants to gain some kind of monopoly so that it can avoid competitive forces, which relentlessly drive profits downward.

Overall I think that this particular move toward a standard that is not technically inferior negates some of Apple's competitive advantage (monopoly) and is a good thing.

Jun 30 11:55 AM

[waterman:]

Apple was one of the companies that signed the agreement to use this new standard.

See CNet article or go to macsurfer.com for other articles

"Apple, others agree to universal cell phone charger standard in Europe"

So I don't think the EU stabbed Apple in the back and I guess Apple has an idea on what to do to comply.

Jun 30 01:21 PM

[Jake Kimble:]

Good article and reference back to QCOM. I believe QCOM has survived the EU quite well and it should continue to outperform other chip makers as CDMA, 3G, and smartphones are continually adopted worldwide (esp China). I would not rule out a CDMA iPhone. Yes its extra engineering costs and Apple likes to corner the market and maintain brand loyalty, but it just doesnt make sense to avoid this opportunity for top line growth. I would be willing to bet that VZ (and QCOM) would pitch some cash in to see this expedited.

I remain extremely bullish on AAPL. They have so many opportunites to jump into adjacent markets: iPad to compete with AMZN's eKindle reader, CDMA iPhone for VZ and China, Netbooks, and who knows what they'll think of next!

I'm still waiting for the first enterprise to adopt the iPhone as mandatory and watch others follow suit. Look up innovation in the dictionary, and AAPL should be in there.

Jun 30 02:02 PM

[numinary:]

from a pure engineering/efficiency standpoint, it seems to make the most sense to try to drag all of the EU countries into using a similar wall plug outlet and electrical power source would provide the largest returns. Does this make too much sense for legislators? Or is it just that this is a more inconvenient issue for them to deal with?

As someone that goes on company junkets around Europe, I would certainly like to see a universal power plug rather than a universal cell phone power cable...

Jun 30 02:13 PM

[Anton Wahlman:]

I agree that this makes sense for (almost) all market participants, such as RIM, Motorola, SonyEricsson, HTC, Nokia, Samsung and LG, because there is really no downside, and only the upside. Apple, however, will find it a pain to comply because it's got such a heavily invested ecosystem surrounding its 30 pin connector/dock.


On Jun 30 11:04 AM nishiko wrote:

> I think this is a great idea, because it's critical that countries
> take on environmental leadership and responsibility. This universal
> smart charger standard is an incredible idea... the cost/benefit
> ratio is exceedingly high in favor of the benefit. I'm glad the
> EU is taking environmentally responsible steps like this, as most
> other countries in the world seem unwilling to for whatever reason.
> And as you said, best of all, what they do often forces the same
> changes world-wide just on an economies of scale reason for most
> products. This only causes short term pain for some companies, but
> holds a great deal of long term rewards.

Jun 30 06:29 PM

[RLLH:]

Quite unsporting on them to take the consumer's side rather than Apple's.

Jun 30 07:26 PM

[Anton Wahlman:]

Looking at the issue logically, Apple pretty much didn't have a choice. Remember that scene from The Godfather -- "Either your brains or your signature will be on this paper"? So yes, Apple has signed onto an agreement, but logically it wasn't what they wanted to do. Remember those AIG employees who gave their 2008 earnings away to charity, when faced with a vote in Congress to tax them at essentially 100%? They wouldn't have given away their money unless there was this kind of legal threat.


On Jun 30 01:21 PM waterman wrote:

> Apple was one of the companies that signed the agreement to use this
> new standard.
>
> See CNet article or go to macsurfer.com for other articles
>
> "Apple, others agree to universal cell phone charger standard in
> Europe"
>
> So I don't think the EU stabbed Apple in the back and I guess Apple
> has an idea on what to do to comply.

Jul 01 12:22 AM

[Anton Wahlman:]

You are correct that it would be great to harmonize the wall plugs as well. It would achieve a similar degree of benefits. However, this MicroUSB move pertains to the other side of the cable. In any given country (or few countries) in Europe, cell phones from all manufactures are sold, and those will now all be able to use the same charger. That solves one big problem. Doing what you suggest would solve another, equally important, problem. I'm all for it. But that step #2 shouldn't negate the equally beneficial step #1 in the form of widespread adoption of MicroUSB.


On Jun 30 02:13 PM numinary wrote:

> from a pure engineering/efficiency standpoint, it seems to make the
> most sense to try to drag all of the EU countries into using a similar
> wall plug outlet and electrical power source would provide the largest
> returns. Does this make too much sense for legislators? Or is it
> just that this is a more inconvenient issue for them to deal with?
>
>
> As someone that goes on company junkets around Europe, I would certainly
> like to see a universal power plug rather than a universal cell phone
> power cable...

Jul 01 12:25 AM

[jsk:]

"First and foremost, this is part of an industrial policy in the EU. We are being told day in and day out that industrial policy is such a good thing, despite that it’s been proven to be one of the greatest disasters of mankind."

Really?!? Too bad the facts you present yourself in your own article prove the opposite. Thanks to this disastrous industrial policy in Europe, Europe has one, completely compatible standard for all cell phones. Europeans can buy any cell phone and use it on any cell system throughout Europe and not have to think twice about compatibility (and, oh yah, at cheaper rates, better service, and more open service agreements than are available in the US). Compare that to your "live free of die" "open market" in the US. Multiple, non-interoperable, completely incompatible systems; duplicating effort for higher costs and lower quality of service (GSM, CDMA, EVDO, 2G, 3G, etc. etc. etc. - do you want to get a PhD in acronyms or just make a phone call?).

Two years ago my extended family all bought new phones. Guess what, they all use MicroUSB for their computer interface and chargers. I've lost count of the number of times that convenience has been a life saver in a pinch. Not to mention that now we can do things like equip each car with only one charging cable (that stays in the car and is cheaper, because it's a universal standard that almost everyone uses) where we used to have to carry around three or four different cables where ever we went (we only had one complete set because of the expense - which also meant we were constantly leaving them behind).

Sometimes too much choice is stupid.

Jul 01 02:29 AM

[berlinator:]

Apple could simply use a 30 Pin to USBmicro cable....
or ad a USB to USBmicro adapter. So no change a the iPhone itself

Jul 01 02:59 AM

[peter02l:]

"The EU is now mandating that all cell phones be compatible with 3rd-party MicroUSB chargers by January 1, 2012."

This will not affect Apple much. Apples current charger has a USB connector to which the cable connect. That is the cable is not part of the connector. So all they have to do is to replace the USB connector on the charger with MicroUSB, and supply the appropriate cable.

This has nothing to do with the 30-pin connector. EU's concern is that people over the years end up with a multitude of chargers for various devices which they don't know what to do with. That is very wasteful, so I applaud what EU is trying to do here.

Jul 01 08:20 PM

[peter02l:]

P.S.

I didn't know it was the job of the EU or any government to create greater potential for Qualcomm.

Jul 01 08:23 PM

[GSlusher:]

From a pure engineering standpoint, that would be "nice," but also a major disaster. It might require replacing every outlet in a country. The economic cost would be staggering, but so would be the environmental cost. It's why the US (and Britain) have not embraced metrification. It would require re-tooling of entire industries. The impact on plumbing, alone, could be many billions. Every plumber would have to carry complete stocks of both British/US hardware (inch-based) and metric hardware for decades. It would double their inventory.

However, MOST countries in the EU already DO use a standard power plug for ungrounded systems. (Some countries use a different plug for major appliances, just as in the US.) The UK, Ireland, and Italy are different. The "Euro-plug" may be the most widely-used in the world.


On Jun 30 02:13 PM numinary wrote:

> from a pure engineering/efficiency standpoint, it seems to make the
> most sense to try to drag all of the EU countries into using a similar
> wall plug outlet and electrical power source would provide the largest
> returns. Does this make too much sense for legislators? Or is it
> just that this is a more inconvenient issue for them to deal with?
>
>
> As someone that goes on company junkets around Europe, I would certainly
> like to see a universal power plug rather than a universal cell phone
> power cable...

Jul 03 12:35 AM

[Anton Wahlman:]

Yes, Europe decided to be essentially 100% GSM back in the pre-1992 days. Has this really been better? In the US, we have had competition between Qualcomm's system, GSM and others such as IS-136 and iDEN. Partially for this reason, US consumers have enjoyed (1) higher data rates and sooner, and (2) lower prices. Compare US voice/data plans with those in Europe, and you will find that US prices are significantly lower than those in Europe. Who has more Blackberry/iPhone/Palm... phones? The US of course.

You say you bought several MicroUSB chargers two years ago. No you did not. The first MicroUSB handhelds hit the market approximately 1 year ago, some 9 months after the standard was finalized in September 2007.

Finally, you say "too much choice is stupid." It's not a matter of "too much" choice. It's a matter of whether choice will be allowed or not. This is important whether we're talking about cell phone chargers or health care providers.

In my case, I very much welcome the advent of MicroUSB and I enjoy the benefits of it. However, Apple should be free to do whatever it wants to do. If it wants to be the only company running its own race, it should be free to do so.


On Jul 01 02:29 AM jsk wrote:

> "First and foremost, this is part of an industrial policy in the
> EU. We are being told day in and day out that industrial policy is
> such a good thing, despite that it’s been proven to be one of the
> greatest disasters of mankind."
>
> Really?!? Too bad the facts you present yourself in your own article
> prove the opposite. Thanks to this disastrous industrial policy in
> Europe, Europe has one, completely compatible standard for all cell
> phones. Europeans can buy any cell phone and use it on any cell system
> throughout Europe and not have to think twice about compatibility
> (and, oh yah, at cheaper rates, better service, and more open service
> agreements than are available in the US). Compare that to your "live
> free of die" "open market" in the US. Multiple, non-interoperable,
> completely incompatible systems; duplicating effort for higher costs
> and lower quality of service (GSM, CDMA, EVDO, 2G, 3G, etc. etc.
> etc. - do you want to get a PhD in acronyms or just make a phone
> call?).
>
> Two years ago my extended family all bought new phones. Guess what,
> they all use MicroUSB for their computer interface and chargers.
> I've lost count of the number of times that convenience has been
> a life saver in a pinch. Not to mention that now we can do things
> like equip each car with only one charging cable (that stays in the
> car and is cheaper, because it's a universal standard that almost
> everyone uses) where we used to have to carry around three or four
> different cables where ever we went (we only had one complete set
> because of the expense - which also meant we were constantly leaving
> them behind).
>
> Sometimes too much choice is stupid.

Jul 03 03:09 AM

[Anton Wahlman:]

And what makes you think that will be compliant? Isn't the whole point about this kind of agreement -- and/or legislation -- to mandate a female MicroUSB connector on the handheld device itself? Nobody else in the industry got away with an adapter between its old connector and MicroUSB, so why should Apple be allowed such an implementation? If the EU makes environmental compliance the main goal here, forcing all users to add an extra adapter is counter-productive. Isn't the EU saying that the same charger must be equally applicable to all cell phones, regardless of manufacturer and that it therefore won't allow some special adapter in Apple's case?


On Jul 01 02:59 AM berlinator wrote:

> Apple could simply use a 30 Pin to USBmicro cable....
> or ad a USB to USBmicro adapter. So no change a the iPhone itself

Jul 03 03:13 AM

[Anton Wahlman:]

I think you're misunderstanding the technology here. This new initiative specifies that the handset itself must be able to use the same charger as any other Motorola, Samsung, SonyEricsson, RIM, HTC, LG, Palm etc. device. So it has to use the same connector. No special adapter, as any such would defeat the purpose of the "One charger for every phone" principle. Why should the EU allow Apple to avoid making the same kind of full transition to MicroUSB that all the other handset makers were forced to make? Remember, I think Apple should be free to do whatever it wants -- I'm just pointing out what the EU could do regardless of my opinion about the sanctity of private property and freedom of contract.


On Jul 01 08:20 PM peter02l wrote:

> "The EU is now mandating that all cell phones be compatible with
> 3rd-party MicroUSB chargers by January 1, 2012."
>
> This will not affect Apple much. Apples current charger has a USB
> connector to which the cable connect. That is the cable is not part
> of the connector. So all they have to do is to replace the USB connector
> on the charger with MicroUSB, and supply the appropriate cable.
>
>
> This has nothing to do with the 30-pin connector. EU's concern is
> that people over the years end up with a multitude of chargers for
> various devices which they don't know what to do with. That is very
> wasteful, so I applaud what EU is trying to do here.

Jul 03 03:17 AM

[experienced:]

The EU attempt to standardize (in favor of its home grown companies) is not only restrictive but goes against innovation. Instead of a uniform connector for charge devices, the trend now is going to a tray that charges any appliance, without any connection whatsoever. Such a device has been produced by Qualcomm and others. I guess that dooms it before the EU.

Jul 03 10:29 AM