Unlocked iPhones. A Great Idea. In Theory!

By  |  Tuesday, June 14, 2011 at 12:16 am

When rumors surfaced yesterday about Apple beginning to sell unlocked iPhones in the U.S. this week, I said I was intrigued by the idea of an unlocked iPhone 5. But I didn’t elaborate. And the scuttlebutt persists.

So here’s a little more detail: my interest is more emotional than rational. I can pull together enough money to pay for a phone in one large chunk. I don’t particularly want to be sign a contract with a wireless carrier if I don’t have to do so. I sometimes travel overseas. So the notion of owning a phone outright, avoiding obligation, and being able to use it outside the U.S.  with a local carrier rather than via pricey AT&T roaming is appealing. It’s what I’ve done several times in the past. (I’ve also bought locked-but-unsubsidized phones that weren’t iPhones from AT&T, which has cheerfully unlocked them for me a few months after purchase.)

Except…

As commenter Mike Cern pointed out, it’s nearly impossible to justify the unlocked iPhone 4 on economic grounds when you do the math. For one thing, an unlocked GSM iPhone 4 is really only designed to run on AT&T in the U.S.–it can’t do 3G on T-Mobile and won’t operate on Verizon or Sprint at all. And AT&T doesn’t give you a price break on the service for turning down the subsidy you get on the phone by signing a two-year contract; your monthly cost is the same whether you go locked or unlocked.

Here’s how the total cost breaks down, assuming you choose the cheapest voice and data options and stick with AT&T for two years:

Locked AT&T iPhone 4 minimum cost: $1758.76 ($199 for a 16GB phone, plus two years of voice and data at $64.99 a month)
Unlocked iPhone 4 minimum cost: $2208.76 ($649 for a 16GB phone, plus two years of voice and data at $64.99 a month)

That’s a $450 savings if you opt for the locked phone with the two year contract–a hefty 69 percent discount. I’m not quite well-heeled enough to pay an extra $450 mostly for the privilege of feeling more liberated and fancy free.

The numbers might look different if you were a frequent international traveler who bought an unlocked iPhone 4 and then swapped out your AT&T SIM for a cheap local one every time you left the states. That could save you more than $450 over two years. But I don’t leave the country that often.

What if you bought a locked iPhone 4 with a two-year contract, then canceled the contract at the first opportunity, so you were no longer under any obligation to AT&T? You’d pay a $325 early termination fee. Assuming you then stayed on AT&T with the cheapest voice and data options, you’d pay $2083.76 total over two years–still $125 less than the total cost for an unlocked iPhone and two years of service. (Of course, if you bought a locked iPhone and canceled the contract, you wouldn’t have an unlocked iPhone, unless you jailbroke and unlocked it.)

My instinct is to be unhappy with all of this. Shouldn’t people who are willing to pay for a product upfront get a better deal than those who aren’t? But maybe I’m just being difficult. Maybe I should be impressed with the subsidized deal rather than disappointed in the unsubsidized one.

On the other hand, when I look at what iPhones cost in other countries, I go back to unhappy camperhood (campership?). If I lived in England, where the iPhone is available on five carriers, I could sign a two-year contract with Vodafone and pay the equivalent of $50 a month. Compared to AT&T’s $64.99 plan, I’d get 33% more minutes, 250% more data, and unlimited text messages rather than no bundled ones–and the iPhone would be free rather than $199.

For now, I’m somewhat grudgingly signing up for contracts when I buy new phones. And chances are that I’ll buy an iPhone 5 and re-up my AT&T contract, especially if the company continues its practice of letting many iPhone owners get new iPhones before they’ve fulfilled their old contracts.

And you?

 

 
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19 Comments For This Post

  1. Drew in NZ Says:

    I wish I had bought my iPhone outright. Got the subsidised deal with the contract, then wound up moving out of the country. Had to eat the cancellation fee (ouch), and apparently now own an iPod touch, because nobody will unlock it (ATT, Apple, or the local companies). Yes, I could jailbreak the thing, but if I wanted to be tinkering with and maintaining software, I wouldn't have bought an Apple product in the first place…
    So, to do it over, i'd buy it unlocked an MINE, to use with whatever company is where I am.

  2. Felipe Adams Says:

    I don't think it is worth the hassle to buy an unlocked iPhone from Apple when there are only two carriers that provide service for the phone. It is very cheap and hassle free to use a prepaid cell phone in many countries. All you need to do is make the people in the U.S. that may contact you when you are overseas know the phone number. I have purchased prepaid cell phones overseas for as low as $20 with an airtime charge of 0.10 cents per minute. Digitally Undivided

  3. Rahul Aggarwal Says:

    I agree that AT&T will revive its reputation and will get to be the favorite among the traveling class customers with the carrier unlocked iphones in the market. The GSM being more preferred than CDMA class is another feather in the hat of the AT&T as a carrier.

  4. Craft for Cash Says:

    Great Post! Unlocked phones can be used on any network. So you buy the phone then get a GSM SIM card and put it in and you are ready to go. It is especially good for people who don't want a contract. Chances are these will be GSM phones only as that is what the rest of the world is running.

  5. Mike Cerm Says:

    Until recently, T-Mobile was offering discounted service (called Even More Plus) to people who owned their own phones. Whether you already owned an unlocked GSM phone, or paid full-price for one of their phones ($450-500 for a high-end Android phone), the monthly rate was $20/month cheaper. There were no contracts to sign, but if you stuck with them for 2 years, you'd end up saving $480, which is a lot more than the roughly $250 subsidy they offered to people willing to sign the 2 year contract and pay the higher monthly rate.

    It was a really great deal, and just what the American market needed: a jump-start towards the European way of doing business. You can imagine how shocked I was when AT&T announced they were buying T-Mobile, and 3 days later, T-Mobile said they were no longer going to be advertising their Even More Plus plan. Yeah, I wasn't shocked at all.

    At the time, you could get Unlimited Data/Text, and 450 voice minutes for $59/month on T-Mobile. To get the equivalent on AT&T costs $85 (and they only give you 2GB of data, not 5GB). It's pretty hard to go to the regulators and explain how eliminating a competitor which offers a superior product at a 40% discount is somehow good for consumers, so AT&T probably told T-Mobile that they had to kill it.

  6. Mobile Comparison Says:

    Actually the iPhone is available on way more than 5 carriers in the UK (we have tons of virtual networks like Virgin). Also, once the iPhone is available unlocked, we can use it on one of ~15 carriers some of which offer unlimited data and texts for as little as $16/month providing a massive saving.

  7. Paul Says:

    Did the sums in Australia and it's about the same price, no savings overall. You can get great voice/data deals with an unlocked phone with no contracts. SInce it cost the same amount, you may as well because you can easily move from carrier to carrier chasing a better deal rather than be locked in to one carrier with one plan.

  8. Yoga Nandiwardhana Says:

    this move is obviously NOT for US customers since it provide little added value for them.

    i think the bigger picture here is Apple is trying to catch the international market by bypassing the big distributors. usually a new iPhone is out first in the US, then in several other countries a few weeks later, and sometimes it took up to 6 months to make it to the rest of the world due to carrier or distributor deals. one can’t buy from the US since it’s contract-tied to AT&T or Verizon.

    if they sell it unlocked in the US, people can easily order and send it to a US address, no need for any registration, then ship it overseas.

    i really hope the iPhone 5′s going to be sold unlocked from the get-go.

  9. ahow628 Says:

    The biggest question mark about the iPhone 5 being unlocked is "What does that mean?" If rumors hold, the iPhone 5 might be a GSM and CDMA phone. If unlocked means that I can go from Sprint to Verizon to AT&T to T-mobile on a whim, that could be pretty revolutionary.

    It would do one of two things, maybe both:
    1) Make phones a better deal on contract. The ability to go to which ever carrier is offering the best deal at the time might put some competitive pressure on the carriers (although Apple might have a hand in setting prices like they do with all their products).
    2) Might move everyone to a contract-less model where there is a price break for rolling your own hardware.

    The other options is that things might not change at all and it will be business as usual.

    Hope I covered all my bases… :)

  10. jltnol Says:

    My instinct is to be unhappy with all of this

    and you SHOULD be! ATT's only way of surviving is to lock everyone into longterm contracts that are expensive to get out of. Once your in, they really don't give a damn about their crappy service, or how well you like or hate them…. you are not going anywhere and they know it.. And even if you could leave more easily, all of the mobile providers are in the same boat, because most of their services suck.

  11. Dave Says:

    There are some smaller US carriers that use the same frequencies that AT&T uses.

  12. James Says:

    I use my (locked) iPhone 3 on H20 wireless, which piggybacks on the ATT prepaid network. (I suspect it doesn't need unlocking because somehow the H20 card makes the phone think it's really an ATT card. Something like that.)

    It costs $50 per month, and there's *no tax* that needs to be added to that. (Add $10 of tax to the ATT plan above.) It's 100mb per month of data, which works fine for me, plus unlimited calling, texting (domestic/international), mms and a lot of international minutes (for instance I know I have 8 hours of calling to Ireland per month.)

    Using the same calculus as above: 649+1200=$1849.

  13. JDS Says:

    I love my unlocked Android phone – I just returned from two weeks in the UK where I got unlimited data, 300 min voice, 1000 texts for £15 from three.co.uk.

    I'm not an ATT customer but I think the math is wrong here – or the comparison of "minimum" plans is unrealistic since everyone consumes many megabytes of data with their iPhones. Using ATT published prices, unlimited data plus voice plus texts costs $105/month. With an unlocked phone you can use pay-as-you-go plans and get the same service for $75/month ($2/day for data plus a voice deal), a savings of $35/month. Over 24 months, you save $840 which is way more than the total cost of the unlocked phone.

  14. SCW Says:

    With 2 different technologies in the USA ( GSM and CDMA) it's harder to put an unlocked phone to use here.

    What most amercians don't realize is that in Europe the mobile market is far more fluid and you are offered real savings for bringing your own phone with you. Refusing the new phone (and it's $400 subsidy) would result in getting the same minutes etc with NO CONTRACT and it'd be cheaper at around $50/mnth.

    This kind of situation has led to real competition in Europe and prices for mobile services have dropped significantly in the last 5 years. Competition was stimulated after legislation forced carriers to unlock phones on request since they are the property of the user. since all european carriers used GSM they were instantly competing with each other.

    These days Mobile phones are almost an "essential" service and the favored US approach of favoring market forces over regulation, simply does not work when suppliers are doing everything they can to limit the choices available to their customers who may wish to leave them.

    The T-mobile / AT&T merger will only make this situation worse.

    When sprint, Verizon, AT&T, boost, cricket, virgin etc have all moved to the same technology ( I.e. 4G LTE) then we might start seeing competition. That will only happen if phones are unlocked and the US carriers start to take non-contract services seriously.

  15. Charlie Says:

    My relatives in the UK couldn't believe it when I told them how much we pay for our iPhones in the US. The prices of cell phone (or I guess I should use the more international term "mobile phone" services in Europe are much lower than what is offered here.

    I always love it when it's said that AT&T claims that they "can't" unlock a US iPhone. Of course they can, iPhones are unlocked all over the world. It's simply that AT&T WON"T unlock them.

    Why does AT&T refuse to unlock an iPhone even after the contract has expired???? Because they can, of course.

  16. Colin Heffernan Says:

    My plan was to buy an iPhone off apple US and get it send to a relative in the US. Then get it sent over to ireland from my relative, and get unlocked over here in ireland . would this work ? Or do i have to pay a montly bill with the US network.

    Can someone explain this to me please :)

    thank you

    Colin

  17. Louis Says:

    I have one iPhone 4 with AT@T prepaid. I have accidentaly upgardet it to version 5.0 (9A334) and Modem firmware 04.11.08.
    Now I am in Europe and would like to use local SIM card.
    Can AT@T make unlock my iPhone so that it can accept T-com SIM card in Montenegro

  18. iPhone SIM only Says:

    In the UK we have many options for unlocked iPhones. There are many carriers that offer "SIM only deals" which offer many advantages like short contracts and the ability to hop networks.

  19. Cervys Says:

    We have unlocked Iphone here in the UK, You can get them free on most networks.