According to people familiar with the negotiations, T-Mobile (the one based in Germany, not the U.S.) is the front runner in Europe to carry the iPhone. Some analysts don't believe that the German company is the best match for Apple's product, though. What's giving them pause?Well, for starters, T-Mobile isn't the largest carrier in Europe. With some 200 million subscribers worldwide, Vodafone ranks as number one. Spain's Telefonica holds the number two spot. T-Mobile, a subsidiary of Deutsche Telekom, ranks third overall (and sixth in Europe) with 101 million subscribers. Vodafone was considered to be the leader in the race to secure the iPhone for European markets due to its size alone. T-Mobile, which has half the number of overall subscribers, would limit the potential distribution of the device compared to other options. Martin Gutberlet, an analyst with Gartner, told MacNN, "It would be in Apple's best interests to get more than one operator to distribute the phone because the European market is more fragmented than the U.S." I have to agree with Mr. Gutberlet on that one.

Other providers that cover all of Europe, such as Orange and O2, were also thought to be competitors for the distribution deal. It looks like they have fallen by the wayside. The inside sources did not disclose any specifics of the deal, including whether or not there would be a 2-year exclusivity deal similar to the one AT&T has in the U.S.

What I find most interesting about this potential deal is that T-Mobile has operations here in the U.S. By partnering with T-Mobile in Europe, a.k.a. Deutsche Telekom, Apple has the potential to shift iPhone distribution to T-Mobile USA once the 2-year deal with AT&T expires. Since T-Mobile uses the same GSM technology, this would open up the availability of the iPhone to a large swath of people (25 million or so) in the U.S. Adding AT&T's customer base to T-Mobile USA's comes out to about 85 million potential iPhone customers in the U.S. Not bad. That's about one-third of the total number of cell phone users in the U.S. right now.

From the U.S. perspective, partnering with T-Mobile makes the most sense simply because it eases the potential shift in distribution come June 2009. But from a European perspective, choosing the sixth-largest cell phone carrier in the region doesn't seem like the smartest move. That would be like Apple choosing Cellular One in the U.S., rather than AT&T.

Sometimes size does matter. Just a bit.