Unlocking the iPhone: What does it mean?

Posted by Rob Enderle, Principal Analyst, Enderle Group

Analyst Opinion - Maybe not as much as you think and maybe everything.  So let's have a closer look.   

The iPhone’s major Achilles’ heel is AT&T/Cingular, which appears to have done its level best to make what should have been a barn burner of a product a mediocre seller. I mean, after the lines and the clear monumental demand, why hasn’t the iPhone reached 1 Million sold?  This is in a market easily 10x the iPod market.  The reason is the service is simply too expensive (some are reporting $120+) and many in the US, because of really bad experiences, won’t touch Cingular for something they depend on as much as a phone.  (By the way, for those of you who point out that Smartphones generally cost $120, let me point out that this is why companies typically pay for them, they typically buy in bulk and don’t actually pay $120 a month either, $120 is a lot for an individual to have to pay, if they aren't Steve Jobs).  

So, if the phone could be separated from AT&T, it could be vastly more popular than it is (particularly if you could lose the data plan); however, in the US the practice of tying phones to services is almost a law which has made it very difficult for consumers to get the phone they want with the service they want. And, even when you do get the phone and service, the service provider may turn off some of the capabilities they don’t want you to have in an effort to get you to pay more (like Wi-Fi or Bluetooth support).   
 

Europe and unlocked phones

This falls in the category of “not as much as you think” as, in Europe it is illegal to lock a phone to a service as we do here. What has likely been delaying Apple in that market is getting around those laws. There is a big difference between a law that is put forth by vendors, in this case carriers, and one that is put forth by governments. Governments get guns and can put you in jail and so their laws tend to carry a bit more weight.

Once the iPhone hits Europe, there will be unlocked iPhones which will likely find their way back into the US via gray market channels.   However, as is often the case with gray market products, Apple may not support them.  This could be a problem if your iPhone fails. Also, not only do you have to make up for the $200 AT&T subsidy you typically have to pay around $100 to get the phone here in the first place making this, at near $1000 with shipping, a very expensive phone.   

Still, there is no third party software or physical changes to the device and downloaded updates plus anything Apple does to break the modified phones shouldn’t affect the gray market products.    


Unlocking your phone

While the initial reported hack for the iPhone involved opening it up, something I doubt anyone would actually recommend, the software products that are coming allow for this to be done without physically altering the phone. Having done this with a couple of smart phones myself, the result is very usable and the cost typically is under $50 for the software (though the iPhone may be higher given a greater degree of difficulty in creating and then maintaining the solution).    

The phones I tried this with did not see any loss of capability; but with the iPhone, you are going to lose at least video voicemail, because that is a feature supplied by AT&T.   Other parts should continue to work fine and, from what I’ve heard from the testing, you get a voicemail experience similar to any other Smartphone, which isn’t that bad.    

Since, unlike other Smartphones, you don’t have to sign up with AT&T (or any carrier) at the store, this actually makes part of this less painful than otherwise would be the case. But I bet AT&T will fix that. This fix is because AT&T pays a subsidy of an estimated $200 and if you either don’t use the phone as a phone (which a number of people are doing) or go to another carrier AT&T doesn’t get that money back. If you were to do this with any other smartphone, you’d have to buy out of your contract and that could get rather expensive.   

In the end, unlocking your iPhone, unless AT&T changes how they deal with it, could actually turn out to be a better experience than with any other phone. In my opinion, that is very interesting.  
 

Changing the U.S.

The “maybe everything” part is this likely will fuel the move to create laws in the US that mirror those in Europe and require phones be sold unlocked.   The popularity of the iPhone coupled with the problems associated with AT&T are causing a lot of us to demand that the US step in to protect consumers like Europe has and make locked phones illegal. Nokia and HTC are both bringing unlocked phones to the US market today and Amazon has an unlocked page showcasing phones from a variety of vendors (they even have the rare LG Prada).  

But, in the end, it is likely the visibility of the iPhone coupled with the efforts to unlock it, - and to prevent it from being unlocked - which will provide the strongest argument to making all phones in the US unlocked.  For most of us, that would be a huge benefit.  

So, thanks to Europe, this unlocking of the iPhone was coming anyway, and thanks to the iPhone we will likely have lots more choice in phones and providers in the US and that covers the spectrum from “maybe not as much as you think and maybe everything”.  

 

Rob Enderle is one of the last Inquiry Analysts.  Inquiry Analysts are paid to stay up to date on current events and identify trends and either explain the trends or make suggestions, tactical and strategic, on how to best take advantage of them.  Currently he provides his services to most of the major technology and media companies. The editorial staff of TG Daily may not necessarily agree with his opinion stated in this article.