When Apple unveiled the iconic first generation iPhone it tried a new business model that no other handset maker had dared consider: demanding a chunk of the carrier’s monthly plan fee. For that payment the carrier got exclusivity on selling the iPhone in its country and Apple was able to sell a very expensive device for what appeared to the consumer as a cheaper up-front cost.
It also allowed Apple to sell the phone at its own stores without taking on the burden of signing up customers to a contract on the spot. Effectively it greased the wheels for those iPhones to walk out the door of the Apple Store without the same sort of pain usually involved with buying a mobile phone.
Of course it was really just a subsidised phone handset dressed up in a different way. Nokia has been doing it for years — it sells a phone to a carrier for $500 which the carrier sells to the customer for $99 and then recoups the upfront cost over the course of the contract through the monthly plan fee.
In Apple’s case the phone was sold the phone to the carrier for a reduced price with Apple receiving the full price of the phone over time through the carrier revenue sharing model.
Of course as became very obvious just weeks after the official launch of the iPhone the revenue-share model didn’t work at all thanks to hackers who were able to break every layer of protection in the iPhone repeatedly making it possible to walk into an Apple Store buy the iPhone (which was supposed to be usable only once activated with a carrier) run a simple utility and unlock the iPhone for use on any carrier.
Customers also hated being forced to buy the iPhone from a carrier of Apple’s choice rather than their own. There are numerous reasons people choose one carrier over another and being forced to be with a particular carrier just to buy an iPhone grated Apple’s loyal fan base in the same way being forced to use a Windows PC at work does.
As Apple looked to expand its iPhone coverage around the world it must have drawn the conclusion that the one-carrier revenue sharing model wasn’t going to work. It had the most chance of succeeding in the retarded US telecommunications market which frequently sees particular models of phone being sold only through one carrier. In most other parts of the world most phones are sold through all carriers in a country and carriers compete on pricing and coverage rather than handset exclusivity. If it failed there Apple must have known it would fail even more miserably elsewhere.
Now it seems that Apple and the carriers are embracing the opportunity to sell iPhones totally unlocked. Australian telco Optus will sell iPhone 3G handsets for use with prepaid SIM cards for $AU729 for the 8GB model or $AU849 for the 16GB model. They can be unlocked free of charge after six months or a $AU80 payment any time before then (including at the time you buy the phone) will give you an unlock code for the phone. This means a totally unlocked iPhone 3G can be yours for $809 for the 8GB model or $949 for the 16GB model.
As a result the market for new iPhones on eBay won’t be going away any time soon — though at those prices carriers will still be making plenty of money selling unlocked iPhones.
What is yet to be seen is how Apple will sell the iPhone through its own Apple Stores. An Apple Store Sydney employee confirmed to me that people would be able to buy the iPhone there from 11th July but it will be curious to see whether Apple will only allow people to walk out of the store after going through a carrier activation process.
Forcing customers through a carrier contract and activation process seemed the most likely thing for Apple to do after so many first-gen iPhones were cracked and Apple lost the carrier commission but if carriers themselves are selling the iPhone for use with prepaid SIM cards which allows the customer to buy an iPhone without signing a contract will Apple allow that as well? We certainly hope so. It would be unfortunate if customers of Apple’s own stores were treated as second-rate customers compared to those who walk into a mobile phone carrier’s shop.
Meanwhile for users of lonely first-generation hacked iPhones in Australia Optus has confirmed that it will allow users to sign up to an iPhone plan with their own iPhone. We’re still waiting to hear back on the details — whether it will require a contract or whether BYO iPhone plans will be contract-free.