AT&T gives H2O, FreedomPop the gift of unlocked iPhones

Lots of iPhones

Updated. AT&T said on Friday it will begin unlocking iPhones after customers’ contracts expire, which could potentially flood the market with millions of iPhones just begging for new carriers. There are two virtual operators in particular well positioned to take advantage of that deluge of unlocked Apple devices: H2O Wireless and FreedomPop.

Among the major U.S. operators, options will be a bit limited, since T-Mobile won’t be able to supply any of those devices with 3G of HSPA+ data. The iPhone 4S sports both GSM and CDMA radios, but it’s doubtful Sprint or Verizon will — or even can –activate it on their networks. However, there’s a huge opportunity here for mobile virtual network operators (MVNOs) that resell the carriers voice minutes and megabytes. Most of the MVNOs partner up with CDMA operators like Sprint for their voice and data so unlocked AT&T iPhones will be of little use to them. But H2O, because it resells AT&T’s access, and FreedomPop, because of its unique business model, will be the exceptions.

Let’s break them down one by one:

H2O Wireless

H2O Wireless already has a thriving business selling SIM cards to unlocked iPhone users, the problem is getting an unlocked iPhone hasn’t been that easy. AT&T has kept the devices bolted down since it started selling the original iPhone in 2007, so customers’ only options have been to buy an unlocked version at unsubsidized prices (which can run upwards of $800 depending on the version) from Apple, bring a used device in from overseas, or hacking a locked device.

Update: Some of our readers have pointed out that it is possible to activate the AT&T iPhone on H20’s network even if the phone is locked. Since H2O is an AT&T MVNO, the phone will recognize the network, but while Internet connectivity will be enabled some features like MMS will not.

Today AT&T made it clear that taking the chains off its devices will be a relatively easy procedure. Here’s AT&T’s statement:

Beginning Sunday, April 8, we will offer qualifying customers the ability to unlock their AT&T iPhones. The only requirements are that a customer’s account must be in good standing, their device cannot be associated with a current and active term commitment on an AT&T customer account, and they need to have fulfilled their contract term, upgraded under one of our upgrade policies or paid an early termination fee.

That means millions upon millions of iPhone 3Gs and 3Ges are already eligible. In a few months, a steadily increasing stream of iPhones 4es — which launched in the summer of 2010 — will also qualify for the unlock. And while iPhone 4S customers aren’t even a year into their 24-months contracts, if they’re willing to pay their early termination fees they’re phones will be free to move to other carriers as well.

H2O’s proposition is simple: Pay $60 a month and get a micro-SIM that will fit the iPhone providing unlimited voice, SMS and 2 1 GB of data (it abandoned unlimited plans in November). Since H2O resells AT&T’s GSM and HSPA services, the voice service, data quality and coverage will likely match AT&T’s exactly – for a far lower price.

FreedomPop

FreedomPop’s iPhone play is a bit more complicated, but the potential rewards for customers who sign with it are far greater. Last week we laid out FreedomPop’s strategy in detail – how it plans to turn data into nearly free commodity that customers can earn and trade. One of the cornerstones of that strategy is to provide only data connectivity to smartphones, starting with the iPhone.

When it launches in third quarter, FreedomPop plans to offer a smartphone shell that fits the iPhone 4 and 4S. That shell will connect its resident device to Clearwire’s 4G WiMAX network as well as act as a mobile hotspot. The kicker is FreedomPop plans to give away around 1 GB of data a month for free, and then sell further access at the rate of 1 cent a megabyte.

FreedomPop, however, won’t sell voice service, so unless customers merely want to use their devices us glorified iPod Touches, they will need to buy a voice and SMS plan from another provider. That will be relatively easy to do. FreedomPop customers can buy a voice-only SIM card service from T-Mobile for between $35 and $50 a month. They can also buy a prepaid micro-SIM card from T-Mobile, Tracfone or any other regional operator or MVNO with a GSM network. AT&T could feasibly even offer its own voice-only SIM to former iPhone customers.

Bringing an iPhone to FreedomPop would mean paying two monthly wireless bills, but many might find the savings worth it. A customer could feasibly pay as little as $40 a month to go online with an iPhone using a T-Mobile SIM and FreedomPop’s free gigabyte data allotment.

Feature Image courtesy of Flickr user mikecogh

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