Unlocked iPhones are Good for Apple

Since Apple released the iPhone, many users have opted to SIM unlock the devices in order to use them with carriers other than AT&T. This began a debate about whether or not this was good or bad for Apple. One one side is Apple, claiming that customers who unlock the iPhone are denying them the revenue derived from their exclusive deal with AT&T. On the other side are many analysts, and regular users like me, who claim that Apple isn’t being honest. Unlocked iPhones are good for Apple, despite the position the company has chosen to take. In fact, they are great for Apple, and represent a substantial portion of the iPhone market that will only generate additional revenue for the company.

Apple’s Deal with AT&T

Before Apple released the iPhone in the United States, it partnered with Cingular Wireless in order to offer that carrier’s service as part of the package. Cingular Wireless was later acquired by AT&T, and the exclusive agreement remained intact. For every iPhone sold, a customer must sign up for AT&T’s mobile service. So that no one feels left out, those who are currently customers of AT&T are required to extend their service agreement. In exchange for this lucrative partnership, AT&T pays Apple a percentage of the total service contract. Apple’s argument is simple: If customers are purchasing an iPhone and using it on any network other than AT&T, Apple is not receiving their share of AT&T’s revenue for those customers.

Background: SIM Unlocking

When a customer purchases a mobile phone from a carrier, that device is locked to that carrier’s mobile network and cannot be used with another carrier. For years, customers have been purchasing phones and either SIM unlocking the devices themselves, or paying someone else to do it for them. This allows the customer to have the phone of her choice, and leaves her free to choose her own carrier on which the device will be used. Depending on whose numbers you believe, it is estimated that between fifteen and thirty percent of all iPhones sold in the United States have been unlocked by customers who have service agreements with carriers other than AT&T.

Why SIM Unlocking is Good for Apple

While Apple may not be receiving a portion of the service fees from AT&T for any phones that have been unlocked, they are receiving something that they would not have received otherwise: a new customer. Those customers who have unlocked their iPhones would not have purchased the devices had unlocking them not been possible. This would have required the cancellation of their current mobile contracts in order to sign up for AT&T’s service, which, as many already know, brings with it a cancellation fee. While I’m sure that some customers would have paid this fee, or simply waited until their current contracts had expired before purchasing an iPhone, the vast majority would not have done so.

Is this good for AT&T? Absolutely not. They are surely not making any money for every iPhone that is unlocked, but Apple cannot say the same, since any iPhone sale is better than no iPhone sale. Apple is also ignoring (read that as “pretending to ignore”) the fact that getting an iPhone into the hands of a new customer, one who may have never purchased an Apple product in the past, is great for Apple.

The Halo Effect

According to Wikipedia, the halo effect (not to be confused with the game Halo by Bungie) refers to a cognitive bias whereby the perception of a particular trait is influenced by the perception of the former traits in a sequence of interpretations. Very fancy language, indeed. This simply means that customers who like a product are more likely to consider purchasing another product from the same company in the future. Apple’s iPod, for example, is known to have had a positive effect on the sales of other Apple products. Customers who had never purchased anything from Apple in the past frequently cited the iPod as their reason for being impressed with the company, and, as a result, returned to Apple to purchase additional products at a later date. Getting the iPhone into the hands of as many consumers as possible is good for Apple, not just because they are making a one-time purchase of an iPhone, but because it means that they are more likely to purchase another product from Apple in the future.

The App Store

The release of iPhone firmware version 2.0 is quickly approaching, and will bring with it the ability to install third-party applications on the device. Apple will open the electronic doors to its new “App Store” at the same time, allowing developers of these applications to offer them for sale to the public in one central location. In exchange, Apple will take a cut of the total sale price of every application sold through the App Store. I mention this because it is one more source of future revenue available to Apple, and every unlocked iPhone will be in the hands of a potential App Store customer. This is huge for Apple. The more iPhone owners that exist, the more potential future sales via the App Store. It doesn’t get any simpler than this.

Conclusion

While Apple may need to publicly state that they are unhappy about the unlocking of iPhones by customers in order to appear to be sympathetic toward AT&T, it simply cannot be true. If Apple is truly unhappy about unlocked iPhones, they are missing the point. an iPhone in the hands of a consumer is better than an iPhone sitting on the shelf for many reasons, as I have outlined. Further, this is good for all iPhone owners, since third-party developers are more likely to spend time writing applications for the iPhone if the user base is significant.

Having said all this, I have been an AT&T/Cingular customer for years, and I have no plans to switch to another carrier at this time. I have not SIM unlocked my iPhone, but I am happy that others are doing it, and I am excited about the things to come in the near future.