Wake up call: Apple is NOT “losing” $500 million to unlocked iPhones
The TimesOnline‘s Jonathan Richards has published a rather sensationalist report entitled “Apple loses out as one iPhone in four is unlocked: More than a million iPhones were unlocked last year, costing Apple as much as $500 million in lost revenue, according to research” . Now, we love sensationalist journalism as much as the next person (in fact, we just recently ran a sensationalist article claiming Steve Jobs “lost” $1 billion), but usually we can see the logic behind the point they were trying to make. That’s not the case here, however.
The crux of Richard’s argument seems to be that despite Apple claiming to have sold 4 million iPhones, AT&T (and Apple’s European iPhone carriers) have only activated just under 3 million of them. By his logic, this means that Apple is losing out on the 27% of iPhones which are presumably being sold unlocked worldwide and used on carriers Apple doesn’t have a revenue sharing agreement with, which would total about $500 million if they were being used on Apple’s carriers.
While the 1 million unlocked iPhones figure is likely correct, the idea that Apple is losing anything is not. First of all, the real way to view the 27% figure is not that Apple is losing out on 27% of shared revenue, it is that Apple has sold 27% more iPhones than it planned. Apple is likely thrilled that it has sold 
1 million iPhones to folks hoping to unlock them and use them on various carriers. The only people conceivably losing out on this are Apple’s partners, and even they are not being hit too hard. Why? Well, let’s take a look at who’s buying these unlocked iPhones…
The majority of these unlocked phones seem to be being sold in Asia, Australia, and South America, places where Apple does not yet have a preferred iPhone carrier, and therefore places Apple is not losing out on shared revenue. Apple is likely ecstatic that it is breaking into the mobile phone market in these countries without even trying, even if only as a hardware vendor. Second, since these iPhones are not being used “legitimately”, Apple has no need to offer support for the products or honor warranties on defective or damaged phones. The cost savings on that alone is quite substantial ( I know I brought my first iPhone back to Apple for a stuck pixel issue, as did 10 of my iPhone-owning friends, some multiple times). Third, these unlocked iPhones serve as ambassadors to locations such as China, India, and South America, generating a buzz and paving the way for brisk sales when Apple does eventually secure exclusive, revenue-sharing deals with carriers.
The mere fact that over 1 million people have paid full price (or in many cases more than full price) in order to use hacked iPhones on their own networks is a testament to the pent up demand for the device, and if anything indicate a rosy future for the iPhone. Sure, in a perfect world, all 4 million iPhones would have been sold only in the US and Europe to people planning to use them on Apple’s preferred networks, but the fact is only about 3 million of the sales were to areas Apple has agreements with. The remaining 1 million unlocked iPhones are simply gravy on Apple’s earnings.
Apple should simply sell unlocked iPhones to “the rest of the world”.
iPhones are being sold (already unlocked, but you have to pay extra for Arabic support) for about $600 here in Saudi Arabia.
I already bought an iPhone for myself and some more for my friends.
it surprises me how much people hate at&t/O2/Orange/T-mobile but love the iPhone enough to hack it to run on another GSM carrier. thats a lot of money to spend without support.
and i agree also that they should sell it unlocked. but the unlocked premium is way too high. i think $300 would be a better price range in that it wouldn’t scare off everyone, but is still affordable in that it originally retailed for $599.
Here’s a headline for ya!
Apple makes $100 million dollars by selling extra phones under the table!
TBM.
Apple should do what makes sense, SaudiMac.
Eventually, Apple will get around to signing contracts with carriers around the globe, but it had to start somewhere. The Mobile Phone market was deemed very hard to break into, so Apple needed a Mobile carrier as a partner. The iPhone could not be sold unlocked until it was a success. Almost all the pundits were telling Apple that the iPhone would flop, because Apple had no experience in a very tough market.
AT&T has the largest network in America, but covers only 30 % of it. The Mobile carriers need to change far more than Apple does.
Apple insisted on a novel contract with AT&T that does not subsidize the hardware. This changed the way in which all Mobile Phones are sold. This meant that Apple made the hardware the determining factor, that is why so many people wanted the iPhone, but not AT&T.
Apple intends to constantly upgrade the iPhone’s software, so it deferred part of the price over the length of the two year conract to pay for it. The iPhone that you have now will do much more two years from now.
That doesn’t count in the third party applications which will convert the iPhone into a handheld computing devise.
Once Apple signs crontract with foreign carriers, then many of those owners who unlocked their iPhone will sign up. It is better and more convenient to be legal.
derrel, we all want lower prices and eventually Apple will get there. Remember that the iPhone was only introduced on June 30. It will be cheaper by the time it reaches one year old, because the prices of its parts will be cheaper. By then, there may be a G3 model.
@Darrel: I would even pay $599 for an unlocked phone in Europe with support.
Unlocked phones ar currently sold by Orange in France for about $1180 (799 EUR) and during the short time T-Mobile had to sell them unlocked in Germany they charged about $1480 (999 EUR) for them.
i understand that you like to “blindly defend apple,” but your piece nevertheless strikes me as woefully naive. businesses simply do not think this way when it comes to potential revenue, and i very much doubt apple in particular is “ecstatic.” they like being in full control of all aspects of their business, and have long proven unwilling to compromise when they can’t get their way (eg: no itunes store in belgium, no iphone in canada). moreover, forcing people to wait only adds to apple’s mystical hold over consumers. such rosy interpretations of events do your readers no service.
@Louis
unfortunatly, the concept of “SIM locked phones” and “subsidized phones” are not common in this part of the world. Most if not all the carriers simply sell you the SIM card (prepaid or with a plan) and you buy an open GSM phone.
It will take Apple forever to strike a deal with every single carrier in the world and by the time they reach my country (not to mention how crappy the Apple providers are here – interesting article regarding that matter: http://www.mymac.com/showarticle.php?id=2808 ) I am sure a 3G iPhone would be out, guess which am I getting 😉