Over a quarter of iPhones are "unlocked"

It was always to be expected that a certain number of iPhone purchasers would go through the trouble of "unlocking" their device so it could be used on any network they want. This involves some work, and though web sites dedicated to the subject abound on the Internet, I always figured that most users would be as interested in customizing their iPhone as customizing their TV.

It was always to be expected that a certain number of iPhone purchasers would go through the trouble of "unlocking" their device so it could be used on any network they want. This involves some work, and though web sites dedicated to the subject abound on the Internet, I always figured that most users would be as interested in customizing their iPhone as customizing their TV.

Clearly, I was mistaken, as reports have revealed that over quarter of all iPhones sold have been unlocked. That article also reveals the motivation for Apple's willingness to "brick" customized iPhones, or iPhones altered so as to make them work on networks with whom Apple lacks an exclusivity arrangement (AT&T in the United States, O2 in the UK):

The higher number is worrying for Apple because the company receives a cut of AT&T's iPhone service fees, revenue that carries a high gross margin and has fueled optimism over its earnings potential.

If the level of iPhone users who opt not to acvtivate with AT&T reaches 30%, then Apple stands to lose $500 million, or 37 cents a share. That's not chump change, even for a large-ish company like Apple, and goes a long way towards explaining why Apple was originally so keen on Verizon Wireless as their American partner. Besides the existence of Verizon's strong broadband wireless service, Verizon uses CDMA as its wireless protocol, whereas most of its competitors use GSM. That's a natural barrier to entry which would reduce incentives for consumers to unlock their phones, given that the result wouldn't work on most other networks, anyway.

That being said, I think the high level of unlocked iPhones says a lot about the technical sophistication of modern users of computing devices. One of Apple's driving assumptions has been that non-technical users are more willing to take whatever experience Apple chooses to give them, a theory based (I believe) on consumer experience of consumer electronics such at TVs. TVs, however, are a bad parallel (even though I used it at the start of this blog).

A TV will always work with anything that can produce a standard TV signal. TVs aren't locked to a cable company, which would be the only way to make TVs an accurate parallel. In fact, most consumers would feel rather restricted if the TV they bought would only work with a particular supplier of television signal.

That being said, there is some basis for the belief that most wouldn't bother to unlock the iPhone. Few consumers bother to unlock ordinary cell phones, even on GSM networks where portability is much easier.

A smartphone, however, is different. Besides having more in common with desktop computers than ordinary phones (which breeds certain expectations of flexibility and customizability), the main reason for the difference is that most consumers must pay a premium to have a smartphone. If consumers must pay a premium for the device (and clearly, that is the case with the iPhone), they demand a certain amount of flexibility to which Apple's business model doesn't readily lend itself.

This may mean that Apple must rely "merely" on the high margins it achieves from sale of the iPhone hardware alone (Apple's hardware margins are famously high), rather than the "top up" it earns through exclusive deals with telecommunications companies. Apple could try to defend its current business model, to be sure, by more aggressive updates which would make unlocking harder. That, however, is likely to work against the iPhone's popularity, which would be unwise given the proliferation of iPhone-style user interfaces among Apple's mobile phone competitors.

The iPhone is cool, but it swims in a market filled with competitors.  That will militate against attempts to shut off avenues for flexibility and customization, which to my mind, is a good thing for consumers, even if Apple's accountants aren't so happy about it.

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