Sen. Kerry Wants Wants His iPhone Unlocked

42 Comments

iphones1The iPhone (s aapl)  has sure brought a lot of whiners out of the woodwork. Today Sen. John Kerry joined them by publishing a blog post on the Save The Internet blog arguing against exclusivity of certain phones on some wireless networks. Yesterday, Kerry sent a letter to the FCC in preparation for hearings scheduled tomorrow that called for investigation into exclusivity arrangements such as AT&T’s (s t) lock on the iPhone or Sprint’s (s s) six-month exclusive on the Pre, asking if those arrangements hurt consumers.

As an example, the letter asks if such deals result in a consumer not being able to use the full features on a device (for example, if a carrier prohibits tethering). Other concerns are whether these deals are becoming more common, and whether it stifles innovation in the handset market.

In March, I wrote about exclusivity arrangements, and questioned whether the government should get involved. I think that most consumers still have access to a variety of competitive devices on other networks. Plus, in most areas they can choose whatever cell phone provider they want and still have an array of devices to choose from. If you want an iPhone, you can get one in most places in the U.S. by signing up for AT&T’s network and forking over a few hundred dollars. These crusaders are confusing a lot of issues with complaints about exclusivity, associating it with higher prices for devices and net neutrality on wireless networksFrom a Free Press release:

“Consumers are outraged by both the high prices of new smartphones and the blocking of access to innovative features,” said Timothy Karr, campaign director of Free Press. “Senator Kerry is leading the fight on Capitol Hill to make walled wireless gardens a thing of the past. It’s time we opened up networks so we can access the wireless revolution at prices all Americans can afford.”

Say what? So far, there’s no guarantee that net neutrality will ever happen on wireless networks — mostly because wireless networks use spectrum that carriers purchased from the federal government, which in most cases (part of the 700 MHz block is an exception) has no open access regulations tied to it. To change the rules now alters the contract with carriers, and that’s a nasty precedent to set. If we want neutral wireless networks, building out white spaces or allocating more spectrum for other types of wireless broadband is the way to do it.

As for the high prices for these devices, I’m not sure what the beef is here. The iPhone is expensive because it’s a mini-computer, and because it’s a desirable object, Apple can charge a premium for it. My MacBook costs more than a Dell Inspiron, and both cost more than a cell phone. Thanks in part to its exclusivity, or at least the ability to lock the iPhone to its network, AT&T actually makes the iPhone cheaper for consumers by subsidizing it. So I think iPhone envy is causing a lot of people to lose their ability to think clearly about wireless broadband. That’s unfortunate, because it could be the method of access for rural Americans in the years to come.

42 Comments

Fritz Oberhummer

Now, as one of the leading resellers of iPhones in Europe I would also like to pinch in my 2 cents:

– Here on the German Market the iPhone reselling rights are exclusive to T-Mobile

– Within the European Union there countries (such as Italy) where the respective governments have implented laws that prohibit the sale of mobile phones which are exclusively bound to contracts

– The iPhone is a five-band device, meaning IT CAN BE USED ANYWHERE IN ANY NETWORK ON THIS PLANET

– So why lock this great device? I say let the consumer decide which network to use. And that means ANY NETWORK on this planet

– Sure, Apple makes a great deal of money and since they also get a chunk of the money of the contracts it is in their natural interest to stick with the current situation

– However, it us “not-official” resellers, who not only sell the product but also actively promote have a big part in the sucess of the iPhone (as we commonly call it ” iPhone ohne Vertrag “, meaning the iPhone unlocked without a contract

– And when it comes down to it people pay way less when they buy the iPhone from “unoffical”
resellers: no binding contract for years, put in any SIM-card anywhere and it works

Furthermore, for those who think that us resellers are just trying to make a “quick buck”:
we offer warranty for 1 year, same as Apple/telphone companies do.

And we are there if our customers need help with the iPhone, even on weekends…

Greetings from Munich/Germany from Team Buyplanet – http://www.buyplanet.de

Pat

@Stacy , et.al. —

You worship the “free market” as if there is such a beast. The reality is that in many markets the players conspire on price and offerings. Examples:

1) cell providers – there is very little differentiation in cost and plans. The iPhone is an aberation on the high-end but looking at the SMS plans, data plans, voice/minutes plans all carriers are offering essentially identically priced plans.

2) airline prices — when an airline wants to raise its ticket prices – it raises them and sees if the competition follows suit. When a route is poorly serviced the airlines jack up the price ( no competition, no “free market” to save the day )

3) Health insurance — this is a race to the bottom when shopping for an individual plan.

4) Credit cards — every card I have offers identically, higher and higher rates.

In all of these cases the “free market” god is supposed to step in and offer me a lower price…. ain’t happening.

Lastly, iPhone issue is also wrapped in the larger issue of “does the consumer actually ‘own’ the phone?” If they cannot do anything they want to the phone, does the consumer really own it. While a phone may be subsidized for a limited duration ( a 2-year contract ), the user should have full access to the phone after the contract expires. This is not happening and should be changed.

Michael

Stacy, what you miss is the fact that one cannot force a cellular phone company to unlock a subsidized phone once the contract has expired (or the subsidy has been paid off with a reasonable return). After the contract has expired, the customer owns the phone and should be able to do what they want with it. Neither Apple nor AT&T should be able, LEGALLY, to withhold unlock codes.

steve russell

The whole idea of of only one carrier for a particular phone is ridiculous. Make a phone with all components of any carrier, and then sell them at a store, then take it to a carrier and let a person put it on the carrier he chooses. I could care less about visual voicemail, and want tethering, so I would take my phone to verizon. You could go to the carriers, try a phone out that you like and then buy a phone from a neutral store. I know it wont happen. I would like an Iphone but wont use at&t ever again. Apple would make more money selling a free phone that could be used on every carrier compared to one carrier. But that’s just my two cents. It wont be popular here but what the hell.

Ame

Personally I am not overwhelmingly concerned about exclusivity. I don’t care how great a phone is, I will *NEVER* patronize AT&T. I will go without every form of communication they offer if I am left with no other choice of carrier.

That said:
My biggest issue is how a carrier cripples a phone and if there’s a particular plan required to use it that takes the option of choice from me. For example, with the iPhone on AT&T, you have very little choice of plan, you get an iPhone plan or you get nothing. I find that to be a problem. With Verizon, you buy your phone, and you have to pay them to turn on functions that the phone comes standard with. I find that to be a bigger problem. That is where I feel the consumer gets screwed.

Mike K

Way to go Stacy. There is nothing wrong with a little differentiation. Imagine every carrier carrying the same exact phones. Its good that carriers and manufactures can specialize their products for a little while.
Forget the government trying to force everybody to have everything the same way. Vareity and a little freedom is good. Let them do so, we benefit with the cheaper pricing for a while. Forget the freeloader guys.

tom

in countries that ban phone subsidies unlocked phones cost less than half of what they do in countries that allow the practice. phone prices are inflated to discourage people from buying them outright and using prepaid.

carterfone laws should be passed for cell phones. phone contracts and cell phone should be sold as seperate things.

if the carriers want to make it easier for people without savings to afford high end phones than they could offer to finance them with the payments being attached to the phone bill. but it should be itemiezed as such and when the two years is up the customer would start to see major savings since they ar eno longer paying for the phone.

Yuvamani

nice idea.

Consumers ARE addicted to free phones, so that is not going to change.

realitybites

Kerry is not only a proven lier but a complete idiot as well which is why the American public rejected him when he ran against the biggest moron on the planet for President and lost.

re: iPhone, He isn’t entitled to anything as he bought a subsidized iPhone.
AT&T gave Apple the whole cost and is getting their money back from his 2 year monthly committment.
If he paid the 599.99 or 799.99 price he would have a leg to stand on.
As he stands right now, he’s laughable and the argument that he and his ilk make takes stupid to a whole new level.
If you don’t want to pay, don’t buy it, idiot.

xnu

The exclusivity of the AT&T deal with Apple brought us Visual Voicemail and back end improvements that Verizon was said not willing to make for a single manufacturer. It has been said over and over again by Steve Jobs that AT&T took a risk with the original iPhone, it is only fair for our tax dollars to be used to see if the iPhone and AT&T are hurting consumers. There was such great innovation prior to iPhone, in fact I remember fondly getting excited about what color RAZR I was going to purchase next, oh the good old days.

I myself am looking forward to Sen. John Kerry running the wireless communication industry in this nation.

Steve Hartzog

Huh? The issue is that wireless carriers force an additional test on phone makers to be compatible with their network. Then they form exclusivity agreements that tie a particular device to a particular network for all time. This is poppycock. Wake up people! Europe at least does this right. Buy ANY phone at ANY store… use on ANY network… with ANY plan (if you so choose to sign up for one) or pay-as-you-go (much more common). The US is woefully locked by the big oligopoly wireless companies… and the government is supporting this. Kudo\’s to Sen. Kerry for seeing what is common sense to the rest of the world.

ilovedessert

I would gladly pay more for an Iphone or a Palm Pre, if I could use them on Verizon. My G/F, my Mom, and my G/F’s parents are all on the same Verizon bill. It is MUCH cheaper for all of us this way, (we get a corp discount for all of us, due to my G/F’s job),

I have only had Palm smart phones, (my forth model), I would love to get the Pre or an Iphone, but that will not happen until Verizon gets either. Frankly I had ATT years ago and their service, (both coverage and especially customer serivce), is was GOD awful and Sprint’s was worse.

Mike Cerm

I’m curious about why unsubsidized cell phones are so expensive in general. Why does Apple charge roughly $600 for an iPhone, when it’s perfectly content to sell iPod Touches for $220. I expect the difference in cost to manufacture the two is maybe $20 at most for the cell radio, bigger battery, and relevant licensing. Why is the acceptable margin on a Touch 40%, and the mark-up on a iPhone is 300%?

I’m not just singling out Apple here, either. Nokia demands the same sorts of margins as well, and consequently sells almost nono of their phones into the US market. Also, recent tear-downs of the Palm Pre put the unit cost at well under $200, yet the MSRP is $850. (I’m sure Sprint isn’t subsidizing that large amount, but the principle is th same.)

DaVo

I’m not sure on how it is done but I’m guessing that it comes down to the retail mark up. The carrier is waving the mark up for the commitment of a 2 year contract. It’s like the old joke, Two bulls are on top of a hill. They are father and son. In the valley below is a huge herd of cows. The Son say to the father, “Dad let’s run down there and mate with one of those cows.” The father replies, “No son, Let’s walk down there and mate with all of them.” I cleaned it up a bit but you get the idea, the carrier is betting on the long money with the contract stating that if the customer breaks the agreement they will pay the balance of the phone. It’s a win/win situation for the carrier.

If the customer doesn’t want to enter a contract they will have to pay the full retail mark up but can leave the carrier any time they wish and owe nothing. Guess what most do? Also you have to consider rebates and the fact that it allows the company to hold on to money and use it for capitol until they send out the rebate check. With sprint it about 6weeks. If you sell 1,000,000 phones and rebate $100 on each that’s $100,000,000 you can hold on to for a short time. Also there will be a number of voided rebates and people who simply forget to mail the thing in.

Maddy

I’m not sure what the beef is here. The iPhone is expensive because it’s a mini-computer, and because it’s a desirable object, Apple can charge a premium for it. My MacBook costs more than a Dell Inspiron, and both cost more than a cell phone.

Usually Named

Bill, are you willing to pay the unsubsidized price of an iPhone? Most consumers aren’t.

That’s just how the US wireless market is. Apple tried to fight it when they first released the original iPhone, but the volumes didn’t jump until they introduced the 3G and its $199 price point.

In any case, Apple was free to not sign an exclusive arrangement with AT&T. There was nothing that would have kept Apple from doing the same thing that RIM is doing with it’s gaggle of Blackberries. However, to get AT&T to develop certain things (like Visual Voicemail), they felt it was the best deal they could get.

All this whining about being locked into AT&T is stupid. Just don’t buy the stupid device. You’re not entitled to anything.

YUvamani

Lets look at some cost numbers.

The ipod touch costs 300 dollars (when the iphone 3g launched and costed 200 dollars with contract). The touch is basically an iPhone without a 3g chip, mic and a proximity sensor. The most expensive components of the iphone are in the ipod touch.

At the same time, the no commitment price of the iPhone 8GB was $599 ( http://tech.yahoo.com/blog/patterson/23890 )

The MP3 player market is free and competitive. The wireless market is restricted and not. Because of the difference in the markets, the cost difference is 300 dollars ! or put another way, I could get 2 ipod touches for the cost of a retail iPhone.

When markets are so uncompetitive and inefficient, it is usually the role of the governments to regulate them to ensure free and fair competition.

I am not entitled to a cheap iPhone. But it is in our best interests to have a free and fair market.

Usually Named

This is a ridiculous comment. How are you defining the market?

You are also making a rookie mistake. The cost of the components does not (and should not) drive pricing. Cost comes into play when you determine margins, but the market sets the price.

Usually Named

This is a ridiculous comment. How are you defining the market?

You are also making a rookie mistake. The cost of the components does not (and should not) drive pricing. Cost comes into play when you determine margins, but the market sets the price.

Bill Dollar

You make the common mistake of conflating handset exclusivity contracts, with handset subsidies. Ending exclusivity does not in any way mean ending device subsidies.

In fact, it’s the exact opposite. Without exclusivity contracts between the device manufacturer and the wireless carriers, carriers would be forced to compete on service as well as device subsidies. AT&T might sell the 3G for $99 with a 2-year contract, while T-Mobile would try to lure customers with a $50 price point.

Once again, ending the anti-competitive practice of handset exclusivity sets the competitive forces free, on service quality, and on device subsidies.

Realist

I think it is unfortunate that your spell checker doesn’t work….

“That’s unfortuante, because it could be the method of access for rural Americans in the years to come.”

dan

Obama and the congress are rewriting all kinds of contracts, why not these. We used to be a nation of contracts and laws, today our leaders believe they can do anything they want under the guise of protecting America or the World. Your details are well founded and I’m sure researched. I’m afraid you have not accounted for the arrogance of this government.

Korion Morris

I think you may be slightly misinformed as to why the current administration is rewriting “all kinds of contracts”. I think it has less to do with their desire to steal your freedom and take over the world and more to do with helping America stay afloat in a time of economic distress.

Bill Dollar

Stacy,

Think you are missing the point here. Imagine if AT&T could not legally lock Apple into an exclusivity contract for the iPhone. Then, if Apple so chose to, it could offer the device on T-Mobile, or even make a CDMA version for Verizon.

Then, instead of these carriers not competing on their actual service, and instead competing based on whatever cool new handset they locked up in an exclusive contract — they’d have to actually compete on what they sell: mobile service.

Om complains — as have you — about AT&T’s readiness to handle the iPhone’s traffic. Imagine if the device was available on multiple carriers: “Come to T-Mobile, where the iPhone actually works in San Francisco and Austin.”

Bottom line is, exclusivity is anti-competitive, because it allows the carriers to avoid head to head competition on the product that consumers pay for each month — the mobile service.

And as for no net neutrality on wireless networks, think again. All wireless carriers, regardless of the 700MHz auction conditions, are subject to Section 332 of the 1996 Act, which subjects them back to Title II, importantly, Sections 201 and 202 which deal with non-discrimination. This, and other sections of the Act, give the Commission the clear authority to enforce neutrality in two-way communications networks — something that was the law of the land that existed well before the 700MHz auction.

Stacey Higginbotham

Bill, thanks for the relevant statute on wireless net neutrality. I’ll check that out. It’s something I’ve been trying to engage people on for a while. I’m at a loss as to how to enforce net neutrality on a carrier that has legitimate worries about delivering a quality service within the constraints of a limited wireless network.

Chris

Bill,

Your economic argument fails on its face. If Apple chooses to sell their product under any conditions that a sufficient number of consumers do not find acceptable, then it will fail. There is plenty of competition in the market, which negates the anti-competitive nature of your argument. Your argument would have to presuppose all products were subject to the same service restrictions or that the iPhone were the only product on the market. Whether it is defined as anti-competitive by legislation is irrelevant to the economic argument.

Legislation can be drawn up in most any form, but our economic system thrives because of competition, not in the absence of it. Such legislation in the end stifles innovation by definition in that it makes it much more difficult for a vendor to either recoup costs or front-load profits enough to sustain the product as competitors answer. It is ludicrous and more than a little juvenile to assert that everyone should be able to dictate terms to any company (a great picture of America where 100% of our economy is selling crap to each other that is made in other countries by companies that have moved their to avoid such silliness).

YUvamani

Well put ! Amen !

Only question to you: The reason Apple went for an AT&T exclusive was freedom. So that they could do things like the iTunes ringtones and the AppStore. Pre went to Sprint for free marketing dollars. I like the fact that the appstore is unshackled from AT&T which would have made a mess of it. How does the government allow Apple to get that kind of concessions if it does not agree to exclusivity? How does Pre get free marketing spend (needed for a struggling company like Palm)

Mike Cerm

Apple went to AT&T for freedom? Hardly. By taking money from AT&T, Apple has given control of the iPhone over to AT&T. Why do you think the iPhone can’t do VoIP or Sling over 3G? They limit podcast downloads over 3G, too. Apple is also supporting tethering in the 3.0 firmware… but not on AT&T.

Windows Mobile, on the other hand, doesn’t suffer from any of those restrictions. Sure, it’s a terrible OS, but since Microsoft doesn’t have any deals with the carriers, the carriers don’t get veto-power over how you use your phone. Tethering (via ICS) is always free, and you can use Skype over 3G.

Bottom-line: When handset manufacturers team up with carriers, the carriers get control, the handset makers get money, but the consumer loses.

Scott

it’s not the government’s job to oversee private industry

let the consumers decide what hurts or helps the consumers

the wallet is the ballot box

Mike Cerm

Your comment is laughable. The free market only works when there are rules. Without proactive government intervention and oversight, we get abusive monopolies, and the public gets screwed.

The wireless telecom market is the perfect example of an industry where it would appear that there is ample competition to ensure that the public is being well-served. Nothing could be further from the truth. For example, we have 4 overlapping national cell networks, but everyone still gets drop-outs here and there. Also, every carrier offers the same 5GB cap, for the exact same $60/mo. This is not how competition is supposed to work.

A conservative view of the proper role of government states that the government should be there to address areas that the so-called free market cannot or will not. The wireless market in the US lags well behind the rest of the developed world. Like healthcare, we pay a lot more, and get a lot less. It seems like a perfect area for the government to step in and demand more. Access to information is a key to keeping America competitive. Since the free market is failing and is actively resisting innovation, the government should take action.

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