Contracts? We don't need no stinking contracts!

My Great Debate this week with ZDNet Healthcare blogger Denise Amrich had us looking at the impact of unlocked phones on the wider wireless market. Having lived with an unlocked Nexus 4 for a few months now, I can very confidently paraphrase the classic line from Blazing Saddles (among other books and movies): "Contracts? We don't need no stinking contracts!"

A lot of people use pre-paid, no-contract phones. They’re first phones for kids, first phones for people old enough to remember operator assisted calls and party lines, phones for those with inadequate credit to get a long-term contract from a major carrier, and, increasingly, pre-paid phones are making their way into the hands of the technorati who want an unlocked smartphone.

That said, the majority of these phones are feature phones and pre-paid plans and carriers feel second-rate at best to the average consumer in the US. Even the major wireless providers in the US are getting in on the act, offering their own pre-paid plans (though largely marketed to non-technical buyers).

All of this has changed, though, with the Nexus 4 on deck and unlocked iPhones increasingly available. The Nexus 4 in particular was never intended for sale through a carrier like most phones in the US. Rather, Google bypassed the restrictions, painfully slow Android updates, and other nonsense that carriers bring to the table.

And consumers have spoken. Google can’t keep this unlocked superphone in stock, even with the absence of 4G capabilities. Consumers also gladly plop down top dollar for unlocked iPhones, march out to their nearest convenience score, and activate their phone with a simple SIM card kit.

So why the change? Because contracts are expensive, restrictive, and rarely come with unlocked phones. A variety of Android phones are launching on pre-paid carriers as well at very aggressive price points. The Tracfone of the early 2000’s is long gone (although Tracfone, owned by a Mexican telecom company, actually owns most of the pre-paid brands in the US) and a broad cross-section of consumers is happily jumping on the bandwagon, saving money and switching phones on their terms rather than waiting for the magical end of their 2-year contracts to upgrade. There is simply too much innovation happening in the mobile space for people to be bothered waiting for updates that might never come or foregoing that great new phone they want because they aren’t yet eligible for an upgrade.

As I noted during the Great Debate and moderator Andrew Nusca reiterated, the only sticking point here is the enterprise:

But there's a big asterisk on the pre-paid market, and that's the IT organization. "Procurement becomes an issue," Mr. Dawson said during the rebuttal stage. That's a big blocker here: the traditional one-stop-shop mentality that IT harbors is at risk here, even though most consumers focus on the impact of contracts on their wallets.

Nonetheless, most people know where they stand. As BYOD takes over the enterprise, those people might find themselves on the same side as IT for once. And wouldn't that be nice?

In fact, the wider availability of unlocked phones that can be used with a variety of carriers may be the best thing to happen to the enterprise since companies like Dell and HP started delivering mass market commodity PCs. Imagine the opportunities for resellers to now deliver mass market commodity smartphones, pre-configured for deployment in an organization on whatever carrier could provide the best price for airtime. Being able to negotiate substantial savings with a new breed of wireless resellers by buying in quantity. Or being able to more easily support BYOD, which, as Andrew points out, is where most of us are headed.

Andrew asked us to look into our wireless crystal ball and predict where the industry would sit in four years. I took a pretty big leap, but I don't think I'm out of line to suggest that the current trend towards pre-paid and unlocked phones would have a pretty significant impact on both consumers and the enterprise (in fact, more so on the latter):

Most importantly, though, when consumers and businesses want to buy phones and tablets (the latter, by the way, will replace phones for many individuals who simply use VoIP and a headset to make calls through their tablet which is their primary computing and communication device) will go to the same places where they would purchase computers, networking equipment, televisions, or any other electronics. Consumers will buy unlocked devices from big box stores and businesses will buy them from VARs or direct from OEMs, and manage them in the cloud, allocating bandwidth as appropriate to users. Gone will be the days of buying phones at the Verizon Store.

Or, I should add, through expensive corporate contracts with Verizon or AT&T. And that's a good thing for everyone involved.