Locked iPhones will cost Apple as global rollout continues

Constant rumors of Apple negotiations with cellular carriers in an ever-growing roster of nations – Spain and China being the most recent – indicate that the company is pushing forward rapidly toward realizing its dream of selling the iPhone worldwide. But its policy of tying the iPhone to one carrier per country has met with increasing resistance.

Yesterday the German unit of Vodafone Group obtained an injunction against Deutsche Telekom AG's T-Mobile unit to try to force it to sell unlocked iPhones in Germany. Apparently T-Mobile could sell locked iPhones as well, but Vodafone claims German law says it must offer an unlocked version as well.


"We want it to be available to buyers without a mandatory calling plan," said Vodafone Germany chief executive Friedrich Joussen.

T-Mobile disagrees. Another hearing on the matter is scheduled to take place in two weeks in the same Hamburg court that issued the injunction. It could well result in the availability of legally unlocked iPhones in Germany.


If that does happen, it will mirror the situation in neighboring France. There the sale of mobile phones locked to a single carrier explicitly violates French law, which forced Apple and its French partner Orange to offer an unlocked version of the iPhone.

France and Germany are just the beginning. I suspect lots of other countries where Apple would like to sell iPhones have similar regulations against locking customers to a single carrier with long-term contracts.

Signs of trouble can already be seen in countries like China and India where Apple has yet to introduce the iPhone. The black market for unlocked iPhones is exploding.

Tim Bajarin, an analyst for Creative strategies witnessed this himself during a recent visit to China. "I saw unlocked iPhones everywhere – in cell phone stores and camera shops, all over the place," Bajarin told Wired. "It was unusual even if one of the major Hong Kong stores didn't have at least one or two [unlocked iPhone] advertisements outside the store. It was really blatant."

Apple's negotiations with China Mobile reportedly are sticking on Apple's demand for 30 percent of the monthly fees, but that may be the least of its problems in its plans to break into the massive Chinese cellular market. Chinese customers accustomed to unlocked SIM cards in their cellphones may well prefer a black market iPhone to Apple's locked, legal version.

With a the market for unauthorized unlocked iPhones thriving and a widespread distaste for locked mobile phones, Apple may soon find its "one country, one carrier" policy on very shaky ground.

Apple's rationale for doing it that way – to lay claim to a hefty chunk of the monthly carrier fees, as well as to benefit its cellular partners – may have seemed like a good idea at the time but it is facing steeper challenges overseas than it did in the United States.

Even in the U.S. where customers are used cellphones locked to one carrier, many jumped at the opportunity to unlock their iPhones once a few enterprising individuals proved it was possible.


The growing international legal quagmires and widespread customer resistance will push Apple to reverse course on this issue. It wouldn't be the first change in iPhone policy.

Apple has already altered its strategy on several aspects of the iPhone in response to various events. It dropped the price $200 to increase sales volume. It announced it would open up the platform to third party software next year. And in Europe, it made a deal with Wi-Fi hotspot providers so iPhone owners can use those networks for free.

I realize Apple would lose revenue from the shared fees, but the tangle of issues it faces calls for new tactics. Apple could still have a "preferred provider" in each country that could offer certain services that users of unlocked iPhones could not get (much as illegally unlocked iPhones now lose some functionality). That would preserve some the shared revenue.

And using the French model as a precedent, Apple could offer unlocked iPhones at a slightly higher price (we still don't know how much higher the unlocked French iPhone will be) to try to push customers toward the "preferred provider."

It may not be a perfect solution, but at least it would address most of the legal issues and present a viable option to customers uncomfortable with being locked to a single carrier. Apple can't wait until its partners lose court battle after court battle and customers all over the planet choose to bypass Apple for the black market.

Steve Jobs, can you hear me now?