why apple also doesn’t want the iphone unlocked

when the news first broke that the iphone had been unlocked, everyone’s first reaction was that at&t is screwed. while it’s definitely true that at&t is screwed (since the iphone was clearly the best thing they had going for them), here’s a reason why this unlocking screws over apple just the same.

according to gene munster, a lead analyst with piper jaffray,

While we do not know the exact details of the agreement, we conservatively estimate that AT&T gives Apple $3 per month (over the life of the 24 month contract) for every iPhone customer already with AT&T and $11 per month for every new subscriber.

furthermore, according to a note from american technology research, another financial firm,

About one quarter of consumers adopting Apple’s heavily-hyped iPhone handset are ‘switchers’ to AT&T from other carriers

so if apple is to recieve $3 per month for every current at&t customer purchasing an iphone, and $11 per month for every new at&t subscriber, if the iphone is locked, this is money apple could’ve gotten but won’t. using these statistics, and the projection of 10 million iphones expected to be sold by the end of 2008, here’s the amount of money apple stands to lose from the iphone’s unlocking (due to people abandoning or not signing up with at&t):

the calculations are done as follows:

  1. percentage of unlocked users multiplied by 10 million (total users projected by end of 2008) = total unlocked users.
  2. 25% of total unlocked users multiplied by $11 plus 75% of unlocked users multiplied by $3 = total shared revenue lost per month.
  3. total shared revenue lost per month multiplied by 24 (total duration of iphone contract) = total shared revenue lost.

now let’s take a look at the amount of shared revenue apple could lose:

  1. if 10% unlock: $120,000,000 lost
  2. if 25% unlock: $300,000,000 lost
  3. if 50% unlock: $600,000,000 lost
  4. if 100% unlock: $1,200,000,000 lost

it is clearly not logical to expect many people already in a contract to jump ship (because of the fine they would have to pay), but if 100% all potentially new at&t subscribers (which means 25% of all iphone buyers) go the unlock route instead, in that case, apple stands to lose $660,000,000 in shared revenue from at&t.

it seems reasonable to expect that a substantial amount of new iphone buyers would have heard about the unlock and will opt to not activate with at&t. even if 50% of only the new users go the unlock route, apple loses $330,000,000.

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18 thoughts on “why apple also doesn’t want the iphone unlocked

  1. AlmostAlive

    Not quite. Apple *gains* because it’s selling iPhones to customers who would *not have otherwise bought it*. Not just from those not willing to switch to AT&T but also those from other countries.

    So they either get $0 from people who cannot or will not use the iPhone on AT&T or whatever profit they get from selling the iPhone.

    Reply
  2. muhammad saleem Post author

    Wayne, first of all, for the other countries, Apple already has plans and partnerships to sell it where they can.

    As for the people who are not buying it because of AT&T, Apple obviously thought it was a better deal to sell it through one network (AT&T) rather than selling it openly. The deal they have from AT&T (bringing them hundreds of millions of dollars in shared revenue) is making them more money than selling the phones unlocked would.

    Though they would still make the 150% profit on the hardware either way, the revenue share from AT&T is definitely an important factor that probably counters the revenue lost from non-AT&T customers.

    Reply
  3. AlmostAlive

    “Apple obviously thought it was a better deal to sell it through one network (AT&T) rather than selling it openly.”

    Clearly.

    “the revenue share from AT&T is definitely an important factor that probably counters the revenue lost from non-AT&T customers.”

    I assume they have some MBA’s who made just that assessment.

    Without locking it down they could never get such a profit sharing agreement with AT&T. Now they have the best of both worlds: the agreement with AT&T and a secondary market of unlockers. Unlockers will always be a small part of the market and are, almost by definition, unlikely to be people who would ever sign up with AT&T. So it’s all gravy.

    The only really valid point is that this might hurt Apple’s partnerships with providers in other countries. They don’t want to have their other agreements undermined until after they are signed.

    Reply
  4. Angeldandruff

    In my opinion, Apple would actually benefit from the unlocking. If you look at http://www.myitablet.com/forum/showthread.php?t=304 you would get an idea of how much Apple actually makes per iPhone ($269 for 4GB and $334 for 8GB rounded off). So, for comparison, if we assume the same 10 million customers who unlock their phone, and assume that atleast 50% of them buy the 4GB, then we are looking at
    $269 X 5 million + $334 X 5 Million = $3,015,000,000 which makes the unlocking more profitable for Apple.

    Reply
  5. muhammad saleem Post author

    @angeldandruff,

    apple is still making that $3,015,000,000 with the phones being locked. they are making $1,200,000,000 from at&t in addition to the sum you mention!

    Reply
  6. HMTKSteve

    Apple needs to re-lock the iPhone with a software patch. If this goes to court Apple loses because it means they can not secure their own hardware.

    Don’t forget about those European contracts and, if apple can not keep the iPhone exclusive to AT&T the contract with AT&T may become null and void thus forcing Apple to say good bye to ALL potential money (past, future and present) gained from AT&T.

    Reply
  7. TheGoont

    You’re also assuming some pretty big numbers as far as the percentage of iPhone customers who would hack it. I think you’re actually referring to a very small underground network who would never come close to the ridiculously high 50% you predicted… The hack is cool, but it’ll never reach Joe Schmoe (even if he hears about it online). That’s like saying the 7th Harry Potter book could have been crushed by an online leak.

    Reply
  8. augustborn2

    I believe earlier the mention of unlock would make more money for Apple by surpassing the 10 mill mark as this is only the USA market. The potential sales would probably spike at 35 mill. If they wait new technology would make this obsolete in 24 months killing other country sales if released after. But in the end i am sure a binding agreement with AT&T prevents them from this for 24 month period. In the end perhaps a poor business decision.

    Reply
  9. Angeldandruff

    @muhammed saleem

    But that is just the AT&T deal … we should see what O2 , T-Mobile and the others will give to Apple …

    Reply
  10. Ryan

    Muhammad where are you getting these chinese numbers? 10 million Americans buying an iphone? Thats over 3% of the US population.

    Reply
  11. Author

    As a percentage, US iPhone buyers will be a very small number.

    50%?! There’s no way anything like that will happen. The vast majority of people will not hack/unlock their iPhone.

    The unlocking market that is the biggest opportunity RIGHT NOW is overseas market.

    Reply
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