Is it a crime (or at least wrong) to sell lock-picks?: iPhone unlocked
It seems that the team of someones at iPhoneSimFree.com are the first to successfully pull off this feat. The group says it has unlocked the phone, and will be releasing its software for sale starting next week.
Unlocking the iPhone dramatically widens the phone's appeal. . . . .
Unlocking the iPhone is on net bad for consumers. Those who already have an iPhone or who are going to get one are possibly better off. The question though is whether this theft will alter AT&T's investments in future capabilities for its network and service. If it does, the consumers will not have quality of service that they would have had and that will work to reduce the iPhone's appeal. One presumes that since Apple wants to maximize iPhone's attractiveness relative to its costs, this cheating will move them away from the right mix of quality. The bigger problem is that this type of cheating reduces the incentives to invent and invest in devices such as iPhone to begin with.
UPDATE: This is about what I expected. This seems like pretty strong evidence that Apple for one doesn't think that it is better off by the unlocking of the iPhone.
UPDATE2: AT&T is now in the act.
Labels: Economics, Freedomnomics
posted by John Lott at 12:57 AM
7 Comments:
I can't agree with the lock-pick analogy or with calling this "theft". When you purchase an iPhone, the device is yours. You own it. This is simply allowing you to take an item that you physically own and modify it to better fit your needs. I believe this is even protected to some extent by federal law.
I also don't understand how this could possibly be on net bad for consumers. It simply decouples the physical device from the network that the device is used on. In theory, this introduces competition where competition previously did not exist and thus AT&T should only be encouraged to improve their network in order to avoid losing customers.
I say "in theory" because, in practice, you can only purchase an iPhone along with a two year service contract with AT&T. This means this hack should have no real effect on AT&T's iPhone related revenue, other than slightly increasing the desirability of the iPhone to consumers who have need to swap SIM cards (for example, someone who does a lot of foreign travel).
There is no "theft" of any sort here. The cost of the iPhone is not subsidized by AT&T. Most purchasers of iPhones have no business transaction of any kind with AT&T until they actually sign up for their service--smart customers buy the iPhone from Apple directly.
The only reason Apple went exclusive with AT&T is that AT&T made huge revenue generating concessions as a result. Apple did not create the iPhone for AT&T or due to inspiration from AT&T. Now that AT&T is locked into a multi-year revenue sharing deal with Apple as payment for this exclusivity, Apple will be all to happy to sell iPhones for a substantial profit to customers of any other carrier. And AT&T can't do anything about it except keep forking over the post-purchase revenues.
This is a huge win for everyone involved, except AT&T. And AT&T has done nothing to merit any windfall to begin with.
I am willing to bet that when you buy the product from Apple that there is an agreement that you make saying that you will not alter the product or its software in certain ways. If there is such an agreement, would that make a difference to you?
Dear Anonymous:
I don't agree that it is a huge win for Apple, nor its customers. Is AT&T going to keep on investing as much in its networks in the future and if not, will that lower the quality of the service that their customers get. What about in other markets where the new iPhone is just coming out? Will the demand for the new iPhone be hurt relative to what it otherwise would have been. I presume that the reason that Apple agreed to this type of exclusive dealing arrangement with AT&T is because AT&T had to make some large fixed investments. Apple could have easily let multiple carriers provide the service but they didn't. Why?
What also does this do to Apple's reputation for being able to prevent such hacking in the future? What impact does that have Apple's ability to market new products that depend on other companies making investments that will help make the product work well?
It doesn't matter if Apple put such a clause in the agreement because current federal regulations grant me the right to unlock it:
http://www.copyright.gov/1201/
Why would any of this hurt demand for the iPhone? In the short term, this simply allows a consumer who has need to use the iPhone on a different network to do so. In the long term (assuming a fix isn't released), it requires AT&T to compete based on pricing and network quality rather than device exclusivity. Why would more competition be a bad thing?
"I presume that the reason that Apple agreed to this type of exclusive dealing arrangement with AT&T is because AT&T had to make some large fixed investments. Apple could have easily let multiple carriers provide the service but they didn't. Why?"
The lock-in allowed Apple to secure favorable terms with AT&T, terms never before seen in the industry. Details of these rumored terms have come to light as similar deals are being inked in the various European monopolies.
http://www.ft.com/cms/s/0/17aa89d0-500b-11dc-a6b0-0000779fd2ac.html
"The contract, which was signed by three European mobile operators in recent days, requires that the operators hand over to Apple 10 per cent of the revenues made from calls and data transfers by customers over iPhones. The deal gives manufacturers of handsets for the first time a direct share of the revenues a mobile phone operator makes from calls and data transfers, marking a shift in the relationship between the parties."
The carriers are granting these terms for a chance at locking in the additional revenue generated by these customers. The minimum two year AT&T contract is worth over $1400. Additionally, AT&T has seen a huge number of customers switch from other carriers, many paying up to $200 to cancel their existing contracts. The exclusive deal gave them this lure. This is no different than when Cingular locked in the Motorola RAZR for the first two years. They monopolize a highly desirable new product to acquire new customers, by leaving customers with only one choice if they must have the new phone.
As to infrastructure build-out, the iPhone uses previous generation technology. AT&T's long neglected and much derided EDGE network infrastructure was indeed upgraded retroactively by adding additional internet bandwidth at the towers themselves, to handle the increased load from the influx of unlimited data customers the iPhone was to bring.
These upgrades were widely viewed as a last-minute effort to keep the initial iPhone rollout from being a complete disaster. AT&T's existing customers had long complained about very poor performance on EDGE. This duct tape will be more than compensated by the $20 a month for unlimited data AT&T collects from these new customers. The in-place upgrades cost a pittance compared to the cost of the initial infrastructure rollout years ago when EDGE was actually new. If anything, the iPhone has allowed AT&T to finally generate some revenue from this expensive and otherwise undesirable infrastructure.
The only AT&T-specific feature of the iPhone, visual voicemail, is a trivially easy thing to implement. In fact, such a design actually reduces the costs of deploying voicemail for the carrier, since the messages are turned into data which is downloaded on the much cheaper data channels, rather than consuming one of the finite voice channels. Expect to see lots of other carriers do the same thing (modulo any patent encumbrance). The R&D and fixed investment here is trivial.
"What also does this do to Apple's reputation for being able to prevent such hacking in the future? What impact does that have Apple's ability to market new products that depend on other companies making investments that will help make the product work well?"
DRM and product lock-ins of any sort have a long and embarrassing history of being broken quickly and completely, in every industry. Apple itself has been in the DRM business for four and a half years with the iTunes store. The DRM applied to these downloads has been cracked at least half a dozen times. Each time Apple patches these cracks, the new version of the DRM is broken within hours or days. So if reputation in this area mattered for much, Apples would already be ruined.
How this will play out legally is of course very much up in the air. One of the online groups to have done this (three have announced similar breakthroughs this week) have just announced that they received a C&D from AT&T regarding the release of their unlocking software, in part on the basis of "copyright infringement".
http://blog.iphoneunlocking.com/?p=15
This accusation is the favorite of 21st century monopolists. Unfortunately for AT&T, cell phone firmware that ties a phone to a specific wireless network is explicitly exempted from the DMCA under modifications made by the Copyright Office in 2006.
http://arstechnica.com/news.ars/post/20061124-8280.html
Again, I think that customers are going to be the long term winners here (along with Apple). There is nothing beneficial to customer choice about these hardware lock-ins. AT&T certainly doesn't like any of this, but I don't think it will harm them in any measurable manner. Most people just want something that works, and they don't want to do anything other than charge their phone and use it. The tiny minority of customers who are tech savvy enough and brave enough to risk bricking their $600 iPhone for a chance to use it on another carrier aren't likely to make a dent.
Thanks very much for the long and very detailed comments.
Dear Anonymous:
1) I don't see how Apple could possibly be made better off by this hacking. Apple could have set up its telephone to be used on multiple networks if it wanted to begin with, but I presume that Apple could not have gotten the networks set up the way it wanted if it had tried to do this. Apple surely wouldn't have been able to share the review with AT&T and other networks, thus lowering the return that the company would get from putting the iPhone together. Not all the international sales operations have been set up yet.
2) I don't think that Apple's DRM for iTunes has been effectively hacked. True it has been hacked a couple of times, but Apple was able to quickly undo it each time.
3) "They monopolize a highly desirable new product to acquire new customers, by leaving customers with only one choice if they must have the new phone."
We give patens for the same reason, to encourage innovation. The point though is that this monopoly power is unambigously making consumers better off because Apple is only getting sales from existing cell phones by offering a better product despite an possible monopoly profits that it might be obtaining.
Dear David:
The fact that the government allows this hacking doesn't imply that it makes either customers or Apple or AT&T better off.
Thanks.
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