Will Apple unlock the iPhone¿s true potential in 2008?

After years of stagnation, the mobile phone market has begun to go haywire, and next year the landscape figures to change even more dramatically.

Already we've seen Verizon Wireless announce that it will open up its network to allow customers to use phones they've purchased elsewhere. The FCC auction in January of the old broadcast television spectrum for use by wireless networks will help promote even more interactivity between devices. Because of efforts led by Google, some chunks of that spectrum will be required to be open to all devices. And Google's Android initiative will further stir the pot by providing a new, more adaptable platform for handset makers.


The trend towards openness – wireless devices that will run on any network – will eventually completely dissolve the connection between cellphones and cellular service providers.

Apple, of course, adopted a cellular business model predicated on locking the iPhone to a single carrier with long-term contracts. A year ago, the company could not have foreseen the cracks that are now appearing in that strategy not just for Apple, but also across the industry.


Look at what's happened as the iPhone has launched in Germany and France in recent weeks.

In Germany Vodafone's court challenge to Deutsche Telekom/T-Mobile's exclusivity deal quickly led to the availability of unlocked iPhones there. Just days after T-Mobile responded by offering unlocked iPhones for €999, €600 ($890) more than the price of one with a contract, competitor Debitel said it will offer unlocked iPhone owners a €600 rebate if they switch.

A French law against locking mobile phones to a single carrier forced Orange, Apple's French partner, to offer unlocked iPhones for €649, quite a bit less than what Germany's T-Mobile is asking. (Point to ponder: if someone buys a €649 unlocked iPhone in France could they sign up with Debitel in Germany and get the €600 rebate?)

As I have pointed out in a previous post, Apple needs to switch to something like a "preferred carrier" strategy under which iPhones locked to a contract would sell for less while unlocked iPhones with some features disabled would sell at a premium. Essentially, they need to roll with what's already happening in Germany and France, though I can't see many people willing to pay T-Mobile's €600 premium.

And let's not forget that of the first 1.4 million iPhones sold in the United States, 250,000 were purchased to be unlocked -- illegally.

Yesterday news Web sites were buzzing with a quote from AT&T CEO Randall Stephenson that we will see a 3G iPhone at some point next year.

Here's where Apple – if it plays its hand aggressively -- has a huge opportunity to expand the iPhone's market footprint in a very short time. Imagine a 3G iPhone that retains its ability to connect to Wi-Fi hotspots as well as AT&T's GSM-based network, which is the most commonly available mobile network technology in the world.

A hybrid phone is not so crazy a thought. Research in Motion started selling a "world phone," the Blackberry 8830, through Verizon back in April. It can use both GSM and CDMA networks (Verizon Wireless in the U.S. is a CDMA network.)


Apple could sell such a "Universal" iPhone as a high-end option at a very steep price. But it also would have to surrender on the concept of locking the device to a single provider.

Rather than continue to fight the inevitable, Apple should announce at January's Macworld that a 3G unlocked iPhone is coming, along with the expected price premiums. AT&T will still get to sell a locked version along with a contract for a lesser sum.

The question is whether the massive boost in sales Apple would get from an unlocked iPhone, Universal or otherwise, would outweigh the profit the company would forfeit from the lost shared monthly revenues with its partner carriers. Profits would have to come primarily from hardware sales, as they do with Macs and iPods.

If high-end cellphones are indeed destined to become portable mini-computers, Apple is ideally positioned to thrive. The iPhone already does this better than its rivals; as with the Mac, Apple's control of both the hardware and software gives it an ongoing advantage.

If Apple can bend a little on the issue of locking the iPhone to one provider, the potential is mind-boggling. The three main impediments to higher iPhone sales have been 1) the price; 2) being locked to AT&T's network for two years; and 3) the relatively slow speed of the GSM technology.

Apple showed how changing just one of those factors could spur sales when they dropped the price $200. Think how many more people would buy an unlocked 3G-enabled iPhone. And how many would buy an unlocked Universal iPhone.


The possibilities boggle the mind.