A rumor to the effect that Apple (AAPL) would be selling an unlocked, no contract version of the iPhone 4 in the U.S. started circulating earlier this week, and as it turns out, it was true: Apple has started selling the unlocked phones and they’re available now starting at $649.
Up until now, all that has been available to customers looking to purchase the iPhone 4 have been models that are locked to carriers AT&T (T) and Verizon Wireless (VZ). Unlocked phones don’t come with a contract, but they’re also more expensive. With a two-year contract, an iPhone 4 runs a new customer just $200 because the cellular provider helps subsidize the cost of the new phone for the customer. Without that subsidy, the end user is paying full price.
What’s an unlocked iPhone 4 good for, you ask? Well, here in the U.S., not a whole lot. An unlocked iPhone can, in theory, work on T-Mobile’s network since it’s no longer tied to AT&T, but it won’t work especially well. T-Mobile uses a different set of 3G frequencies than AT&T does, and the iPhone’s internal hardware is tuned to AT&T’s frequencies; so while you could potentially move the phone to T-Mobile, the best you could achieve would be EDGE coverage.
Overseas, however, an unlocked phone makes more sense. Simply changing the phone’s micro-SIM card can move the phone from network to network, dodging any issues with roaming one might encounter while hopping from country to country in Europe. But that also means it’s up to the customer to snag a mobile contract and the appropriate micro-SIM cards, and Apple has said that iPad micro-SIMs aren’t compatible with iPhones.
Technically, an unlocked iPhone is a cheaper phone, despite its higher upfront price. Mobile carriers subsidize phones for new customers as an investment in the long-term relationship they’re getting out of it. When buying an iPhone 4 on a two-year contract, the phone actually ends up costing about $2,000 over those two years, so AT&T and Verizon are fronting the difference in price – in this case, about $449 – and bringing down $1,551 over the course of the contract. Apple is selling the 16GB unlocked iPhone 4 for $649, the 32GB model for $749.
Sure, there won’t be an incredibly large market for the unlocked iPhone 4, but there will be some people who will find use in buying phones out of contract, like the especially tech-savvy or international travelers as mentioned above. Those people now have a new option that costs Apple exactly nothing to supply, which is the kind of customer service that’s good for business. What few people will buy an unlocked iPhone 4 will be happy they were given an option, while Apple gets to sell a few more phones. Win-win.
Don’t expect to see an unlocked iPhone 5 anytime soon, however. Unlocked phones usually become available late in their life cycle, and Apple is unlikely to offer an unlocked version of the new device when it is likely released this fall. That means paying the full two-year price to Apple and the mobile carriers, whether you want to or not.
