Unlocking The Apple (AAPL) iPhone

There is a hardware developer obsession with "unlocking" the Apple (AAPL) iPhone that has spread to the media. The state of being unlocked allows the handset to be used on networks which do not have cellular distribution deals with Apple. In the US, that privilege belongs to AT&T (T). Since some network technology is not compatible with the iPhone, it is not such a big deal as it seems at first.

In theory, Apple should be fine no matter how many of its new 3G handsets are unlocked. It should be paid for each one of them. It may lose some money from AT&T, which pays it part of the subscriber revenue it brings in from the calling plans linked to iPhone sales. It probably makes up for that by all the additional sales it makes to people who want to unlock their handsets for less restricted use.

According to The Wall Street Journal, "a group called the iPhone Dev Team released a free piece of software called "yellowsn0w" that unlocks the iPhone 3G. The software lets users reprogram the phones so they can work on any wireless network based on the same technical standard." Even with the unlocking software it won’t work on a system like Sprint’s (S) "direct connect" service, a network it got from buying NexTel.

The unauthorized use of the iPhone based on the ability to unlock its new 3G handset is actually a good way for Apple to get money from consumers and cast the needs of its carrier partners aside. Apple can always claim that it is not responsible for the problem. It would be expensive to keep introducing new versions of the phone which cannot be unlocked, at least until the next group of geeks comes along.

But, Apple won’t make the investment to protect the integrity of its exclusive partnerships. One of the reasons investors like the company is that it is in business for the money and just the money. Taking care of partners is not in its DNA.

Douglas A. McIntyre