April 21, 2014

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Does Apple Object to iPhone Unlocking?

I wrote Monday about efforts to “unlock” the iPhone so it worked on non-AT&T cell networks, and the associated legal and policy issues. AT&T lawyers have aggressively tried to stop unlocking; but Apple has been pretty silent. What position will Apple take?

It might seem that Apple has nothing to lose from unlocking, but that’s not true. AT&T can exploit customer lock-in by charging higher prices, so it has an obvious incentive to stop unlocking. But AT&T also (reportedly) give Apple a cut of iPhone users’ fees, reportedly $3/month for existing AT&T users and $11/month for new users. This isn’t surprising – in exchange for creating the lock-in, Apple gets to keep a (presumably) hefty share of the resulting revenue.

Apple’s incentive is much like AT&T’s. Apple makes more money from iPhone customers who use AT&T than from those who use other cell providers, so Apple gains by driving customers to AT&T. And it’s not pocket change – Apple gets roughly $150 per user – so even though Apple gets money for selling iPhones to non-AT&T users, they get considerably more if they can drive those users to AT&T.

Thus far, Apple seems happy to let AT&T take the blame for intimidating the unlockers. This mirrors Apple’s game plan regarding music copy-protection, where it gestures toward openness and blames the record companies for requiring restrictive technology. If this works, Apple gets the benefit of lock-in but AT&T gets the blame.

From Apple’s standpoint, an even better result might be to have iPhone unlocking be fairly painful and expensive, but not impossible. Then customers who are allergic to AT&T would still buy iPhones, but almost everybody else would stick with AT&T. So Apple would win both ways, selling iPhones to everybody while preserving its AT&T payments.

What a clever Jobsian trick – using a business model based on restriction, while planting the blame on somebody else.

Comments

  1. Douglas Kastle says:

    It’s is a very good and it wouldn’t surprise me if it was true. Jobs always seems to be playing a different game from every body else, in retrospect his maneuvering of the itunes from DRM had all the hallmarks of a chess grand master. My theory though is that his stated reasons weren’t the whole story and that is was also motivated by the patent for wireless communication between handheld devices :

    http://www.appleinsider.com/articles/07/07/12/future_apple_ipods_iphones_may_talk_to_each_other.html

    DRM is about manageable in the current server/client format, I imagine it would become much harder in a client/client version.

    Jobs is always playing the angles, he reminds me of Connery in the Untouchables explaining “The Chicago Way”

    They pull a knife, you pull a gun. He sends one of yours to the hospital, you send one of his to the morgue. *That’s* the *Chicago* way!

  2. Todd Jonz says:

    Let’s speculate about the numbers a bit further.

    Apple’s gross margins on the iPhone are purported to be in the neighborhood of 50%. Let’s assume that Apple retains all revenue from iPhones purchased from an Apple store. This would mean that Apple makes $300 on every iPhone it sells itself.

    Let’s further assume Apple and AT&T share equally in the margin on phones sold by AT&T. This would mean that Apple makes $150 on every iPhone purchased from AT&T. Add that to $150 cut it receives from each AT&T service contract and Apple is also making about $300 on iPhones sold by AT&T.

    Now consider AT&T’s coverage area, which excludes the entire state of Vermont (where I live), large portions of the Plains states, and numerous other pockets around the U.S. This is currently an untapped market, and one that will be opened only if unlocked iPhones become easily available.

    I’m watching current developments in the iPhone DRM war with eager anticipation. I wonder how many others in this untapped market are doing the same….

  3. sadsac says:

    While Apple isn’t saying much, I’m sure that they’re hearing much – from AT&T. Apple is responsible for the design of the technical mechanisms that were to protect it’s exclusively deal with AT&T. If AT&T is upset, for whatever reason, Apple may be inclined to pacify them somehow. AT&T may demand that Apple institute firmware changes or hardware changes to new production runs. AT&T could also seek contract changes, or require new iPhone sales to occur only in conjunction with an AT&T service contract.

    After AT&T finds that stopping the unlocking flood gates won’t be possible, they will turn to Apple for satisfaction. It will be interesting to see how Apple responds.

  4. Andy says:

    I find it hard to believe AT&T and Apple completely failed to account for the possibility that the iPhone would be unlocked. I don’t know what their agreements look like, but I’d be willing to bet there’s something in there to address the eventuality.

    I’m admittedly ignorant about how valuable it is to the average iPhone consumer to be able to switch to T-Mobile, the only GSM provider in the US. It seems to me that, apart from the satisfaction of breaking free of AT&T/Apple’s attempt to restrict choice of providers, the average iPhone owner doesn’t have a lot of incentive to pay for someone to unlock their phone. As far as I can tell, until someone comes along offering wireless service compatible with the iPhone that is a) a lot cheaper than AT&T, or b) a lot better than AT&T, not that many people will go to the trouble of spending the time and money to unlock their iPhones.

    If that’s the case, AT&T wouldn’t have that much to worry about. Certainly, if the number of customers they stand to lose is not that great, they won’t want to sour things with Apple with a lawsuit, or even hardball negotiating.

  5. Andy says:

    Addendum: I forgot to note that European customers are another story. I’m assuming that AT&T would be most immediately concerned with the US market.

  6. Leo Richard Comerford says:

    I can think of two other reasons for Apple to care about unlocking. One is obviously legal liability; surely it couldn’t brazenly walk away from its commitment to keep the iPhone locked without facing a lawsuit from AT&T. Of course the law is an expensive and crude incentive, which is why AT&T made sure that Apple has the extra incentive of being paid by commission. Apple also has to worry about its reputation as a business partner – and very specifically, about future iPhone carrier agreements. Europe may or may not be in the bag just yet, and there’s the rest of the world after that. Obviously the market price of future iPhone deals directly depends on the phone networks’ estimate of how much lock-in Apple will be willing and able to deliver. I’d guess that the networks are already wary enough about dealing with Apple because of iTunes, where (it seems) Cupertino got much the better of an apparently generous deal with the record industry.

    Overall, it seems that Apple has walked into a sticky position. It would be possible to feel sorry for the company if it hadn’t walked into this position very deliberately. It’s not as if the relatively early unlock can be any kind of surprise to them.

  7. Abner says:

    Given that it took *8* weeks to crack the “locks” Apple designed into the phone, Apple can probably claim they did enough to keep the phone locked for AT&T. That’s a pretty good timespan for these sorts of cracks even if they underestimated the amount of firepower that would be spent on trying to free the device. If AT&T was truly tied into keeping the phone locked for as long as possible, then they should have hired an outside set of consultants to evaluate Apple’s design.

  8. Barry says:

    So what happens when T-Mobile gives Apple a kickback not to redesign the iPhone?

  9. Right to unlock? says:

    I thought that there is a clause in US legislation (that makes DRM law?) that states that it shall not infringe on the right to unlock phones for use on other networks.

    Does this apply to iPhone and Apple / ATT? Or am i mistaken?

  10. Mike says:

    I don’t care if Apple objects to it, honestly. I just unlocked mine, hehe.

    http://squidoo.com/howtounlockiphone/ :P

  11. Wallpapers iPhone says:

    I just unlocked my iPhone using ziphone 2.5.

  12. Andy says:

    Has anyone else seen the free Apple IPhone deal on http://www.nextmobile.co.uk as you can get an unlocked IPhone on any network free with the contracts – will the phone stay unlocked?? Thanks

  13. forum iPhone says:

    @Andy
    The phone won’t stay unlock if you update it with a new Firmware