iPhone: Locked down, locked out

iTunes notwithstanding, the iPhone hardware represents a potentially disruptive force. If Apple released an unlocked iPhone, that could start to break the stranglehold that cellular carriers have on the cell phone hardware business by offering a phone that's not rigged to work only with a specific carrier's service. In other word, vendor lock-in.

As happened with Western Electric and AT&T with home telephones before the Consent Decree that broke up the monopoly, cellular carriers may no longer be the gatekeeper for which phones you can choose, what software comes loaded on them and how much you pay. A recent Copyright Office decision prevents carriers from prosecuting consumers under copyright law if they unlock a phone that they own and use it with another carrier's service. Now what keeps users from buying elsewhere is not legal considerations, but an economic one - the carriers' clever business model that defers the cost of buying a phone by bundling most of the price into a service contract. You pay the full price, just not up front. Instead, you might pay nothing, or $50 instead of the $300 full retail. But if users get all of the features of a multifunction iPod phone, they may be more willing to pay up front.

Apple doesn't appear to have enough confidence in the iPhone to give this business model a try. But by apparently linking its fortunes exclusively with Cingular it is greatly restricting potential sales. It's a great deal for Cingular and a poor one for Apple.

If Apple does offer an unlocked phone, iPhone just might introduce a new openness in service mobility. Other phone manufacturers that offer unlocked phones could also see their sales increase. And If users get used to the idea of buying their own phone, there will be no need to get locked into the unpopular two-year contracts required today.

A dual-mode iPhone would also give users more choice by allowing them to bypass the cellular carrier when roaming through WiFi hot spots. That's unlikely to happen for two reasons: Apple has tied is fortunes to Cingular, which wants to protect its business, and doing so will create further legal headaches with Cisco, which is already suing Apple for trademark infringement for its appropriation of Cisco's iPhone trade name. Apple's defense, according to this Computerworld story: "Apple executive told PC World that because the Cisco iPhone is a voice over IP (VoIP) phone and the Apple iPhone is a cell phone, Apple is not violating Cisco's trademark."

The mobility that comes from an unlocked phone costs more up front if users could forgo phone payment embedded in the montly service contract. And most users realize that the full cost of that "free" or "discounted" phone is actually built into the service contract in higher monthly charges. Today, however, if you buy your own phone the carriers won't give you a lower rate. But if enough consumers begin buying their own telephones, they may begin demanding a la carte pricing - and it could spark increased price competition for cellular services. That's a good thing, since plan prices have been steadily increasing as carriers continue to raise the minimum number of "free" minutes per month one must pre-purchase in a service plan.

More choice can only benefit the user. So reconsider, Mr. Jobs. If you really want the iPhone to be a revolutionary product, make it dual mode. And unlock that phone.