Associated Press delves into legalities of iPhone unlocking

[AppleInsider]

With several iPhone unlocking methods gaining traction over the past week, the Associated Press has done some investigating into the legalities of the matter and is reporting that unlocking the phone for one's personal use appears to be legal.

On the other hand, hackers who contrive such unlocking solutions with the intent to profit from them are likely to face legal problems. At least one of the companies hoping to make money by unlocking iPhones told the AP that it is hesitating after calls from lawyers representing AT&T, the exclusive U.S. wireless provider for iPhone.

"Whether people can make profits from software that hacks the iPhone is going to depend very much on exactly what was done to develop that software and what does that software do," said Bart Showalter, head of the Intellectual Property practice group at law firm Baker Botts in Dallas.

Uniquephones.com, an outfit based in Northern Ireland, says nearly half a million people have expressed interest in its $25 iPhone unlocking solution. The firm had planned to release the software earlier this month but is now seeking legal advice after having received some 'friendly advice' from AT&T's attorneys.

Another firm, iphonesimfree.com, has said it plans to release its own iPhone unlocking software in a few days. Meanwhile, 17-year-old George Hotz managed to unlock his iPhone all by himself last week, using both software and hardware modifications. He then attempted to sell the unlocked phone on eBay but ended the auction after fake bids apparently sent the price to $100 million.

Instead, Hotz traded the unlocked phone for "a sweet Nissan 350Z" and three iPhones, according to his blog.

According to the AP, The Copyright Office of the Library of Congress last year issued a statement that unlocking cell phones for one's own use, for instance to place calls with a different carrier, was not a violation of copyright under the Digital Millennium Copyright Act.

However, the AP added in its report that a Florida-based company selling phones that use prepaid plans, won an injunction in February against a couple who bought its phones in large numbers and resold them unlocked.

Further details are available in the AP's thorough report on the matter.

[ View this article at AppleInsider.com ]

[roehlstation]

Go ahead, unlock them, then we'll get to hear reports from people whining because all the features don't work right. You know that's what'll happen. I'm certain they'll be unlocked eventually, it just makes more sense at this point to leave it with one carrier until they are certain everything will work correctly.

[pubguy]

Don't get confused here. Prepaid phones are "subsidized" because you are locked-in to the provider at their rates when you purchase the phone and they make up the price difference as you use up and refill your minutes.

The iPhone is unsubsidized so you are paying full retail price. If you cancel you agreement with AT&T within 14 days, the phone is still yours to do with as you please. If you want to unlock it and use it on T-Mobile or overseas, that is your legal right and it does not conflict with AT&T's terms of service or anything else.

[solipsism]

As I've stated before, Apple knew this would happen. Apple will have (a) "killer app(s)" that will keep 99% of iPhone users on their preferred networks as they will only work through the modified carrier networks. This is the only way to maintain the contracts with the carriers. Apple and the carriers desperately want the additional funds from the monthly dues. They certainly have a contingency plan i place that doesn't require expensive legal fees, that is for certain.

Originally Posted by pubguy

If you cancel you agreement with AT&T within 14 days, the phone is still yours to do with as you please. If you want to unlock it and use it on T-Mobile or overseas, that is your legal right and it does not conflict with AT&T's terms of service or anything else.

You are mistaken. You don't need to signup with ANY carrier to purchase an iPhone. Unles of ofcure, you were refering to people who recently purchased an iPhone and now want to get an unlocked phone. In that case, ignore my post.

[SpamSandwich]

Mr. Sulu, set phasers to 'unlock'... I hope the unlocking frenzy continues unabated. All this will do is keep the other cell providers wondering what the next move will be by Apple, and keep up the pressure to innovate and improve existing offerings.

[steviet02]

Originally Posted by solipsism

As I've stated before, Apple knew this would happen. Apple will have (a) "killer app(s)" that will keep 99% of iPhone users on their preferred networks as they will only work through the modified carrier networks. This is the only way to maintain the contracts with the carriers. Apple and the carriers desperately want the additional funds from the monthly dues. They certainly have a contingency plan i place that doesn't require expensive legal fees, that is for certain.

So you're telling us that if Apple could sell 1 million more units because it's unlocked that they would rather not becuase they wouldn't get a monthy fee from ATT? Are you kidding?

you're right about one thing the carrier desperately wants the monthly fee.

[solipsism]

Originally Posted by steviet02

So you're telling us that if Apple could sell 1 million more units because it's unlocked that they would rather not becuase they wouldn't get a monthy fee from ATT? Are you kidding?

you're right about one thing the carrier desperately wants the monthly fee.

An so does Apple. Sales numbers and marketshare mean nothing if you don't have the profits to back it up.

By all reports posted here on AI by analysts, net profits from AT&T's monthly payments to Apple (especially from new subscribers) greatly outweigh the net profits of hardware sale of each iPhone.

[pmjoe]

Originally Posted by pubguy

Don't get confused here. Prepaid phones are "subsidized" because you are locked-in to the provider at their rates when you purchase the phone and they make up the price difference as you use up and refill your minutes.

Well, technically, they make up the difference because you are locked into the carrier for a time period, and they have an early termination fee that usually nearly covers the difference in the subsidy. Being locked into time is more important than rates here because rates usually do down in this market.

The iPhone is unsubsidized so you are paying full retail price.

Yawn. This has been gone over numerous times. The iPhone is subsidized. Apple gets money from AT&T via your service plan. That is how all phone subsidies work. If some people on this site want to pretend otherwise or Apple wants to do some kind of clever labeling of their iPhone finances, more power to you and them. I played with the numbers in another thread on this site, and Apple gets roughly the same money as other phone producers do (though they get a decent premium for getting people to switch from other carriers to AT&T).

[pmjoe]

And no the DCMA has nothing to do with phones. DMCA was designed to protect digital media copyrights, i.e. audio, video, books, etc. If you hacked the iPhone to illegally play DRM'd music/video or read DRM'd e-books, then you'd be volating DMCA. You bought the phone, you can do pretty much whatever else you darn well please with it.

I presume AT&T has a early termination fee in place to protect themselves from people unlocking the phone?

[Rot'nApple]

Originally Posted by AppleInsider

With several iPhone unlocking methods gaining traction over the past week, the Associated Press has done some investigating into the legalities of the matter and is reporting that unlocking the phone for one's personal use appears to be legal.

On the other hand, hackers who contrive such unlocking solutions with the intent to profit from them are likely to face legal problems. At least one of the companies hoping to make money by unlocking iPhones told the AP that it is hesitating after calls from lawyers representing AT&T, the exclusive U.S. wireless provider for iPhone.

"Whether people can make profits from software that hacks the iPhone is going to depend very much on exactly what was done to develop that software and what does that software do," said Bart Showalter, head of the Intellectual Property practice group at law firm Baker Botts in Dallas.

Uniquephones.com, an outfit based in Northern Ireland, says nearly half a million people have expressed interest in its $25 iPhone unlocking solution. The firm had planned to release the software earlier this month but is now seeking legal advice after having received some 'friendly advice' from AT&T's attorneys.

According to the AP, The Copyright Office of the Library of Congress last year issued a statement that unlocking cell phones for one's own use, for instance to place calls with a different carrier, was not a violation of copyright under the Digital Millennium Copyright Act.

[ View this article at AppleInsider.com ]

500,000 showing interests, WOW. I can see this getting somewhat messy with regards to having phones out there that develop problems, who ya gonna call, not 'GhostBusters'. What are other peoples views on the following bullet points:

• If hackers recoded Apple's iPhone software code to unlock, does that infringe on Apple's rights regarding their original software code that they can sick Apple Legal on whoever or at the very least not give the one year customer support the customer has starting at the date of purchase?

• Does such hacker software void any warranty with Apple if they don't have to open the casing of the actual hardware (iPhone) itself?

• What if they purchased Apple Care with iPhone and used hacker software to unlock, if Warranty IS voided, can "customer" get Apple Support with Apple Care or not, and if not, can the customer get a refund of the money paid to Apple for said Apple Care Protection since they are not going to be provided support service or is tough luck to the buyer?

Originally Posted by AppleInsider

However, the AP added in its report that a Florida-based company selling phones that use prepaid plans, won an injunction in February against a couple who bought its phones in large numbers and resold them unlocked.

[ View this article at AppleInsider.com ]

"a couple who bought its phones in large numbers and resold them unlocked", but I thought, according to a lot of posters here, that if you bought it, it was yours to do with anyway you pleased?

Don't give me "locked" and "unlocked" status, I buy t-shirts on a wholesale "locked" price to send in and have them screen printed for resale by me. I can, at times, also buy same t-shirt on sale "unlocked" from the wholesalers normal price (I just make a little extra profit) but I still get to do with it (resale shirts) anyway I please. What's the dif with what the couple from FL buying subsidized phones if you are able to do anything you want?

[solipsism]

Originally Posted by pmjoe

Yawn. This has been gone over numerous times. The iPhone is subsidized. Apple gets money from AT&T via your service plan. That is how all phone subsidies work. If some people on this site want to pretend otherwise or Apple wants to do some kind of clever labeling of their iPhone finances, more power to you and them. I played with the numbers in another thread on this site, and Apple gets roughly the same money as other phone producers do (though they get a decent premium for getting people to switch from other carriers to AT&T).

Apple may still be getting it's cut from AT&T, but That is NOT how all phone subsidies work. The carrier pays the manufacturer a pre-determined fee based on the sale on the device. This happens at the intital sale and has absolutely nothing to do with obtaining monthly service dues. This is a new paradigm in the way manufacturers interact with carriers, it's the main reason Verozon turned Apple down, and it's the biggest issue Apple and AT&T are facing with these unlocking reports.

[SpamSandwich]

If nothing else, this should plainly illustrate to Apple that they are not currently offering a phone solution (including the cell service provider) that their customers (and more importantly, potential customers) are happy with.

The next iPhone will have even broader appeal and will be unlocked.

[steviet02]

Originally Posted by solipsism

An so does Apple. Sales numbers and marketshare mean nothing if you don't have the profits to back it up.

By all reports posted here on AI by analysts, net profits from AT&T's monthly payments to Apple (especially from new subscribers) greatly outweigh the net profits of hardware sale of each iPhone.

I think if you look at it from the standpoint of people buying the phone and unlocking it or not buying it at all, Apple would rather the phone was purchased. While they might not make as much in the way of profits, it's still profits that they wouldn't have received.
I dont buy for a second that the markup on the phone is minimal.

I don't agree with your reasoning, but we will find out where Apple stands when updates come out. If the unlocked phones have issues then you'll be proven right.

[Louzer]

Originally Posted by solipsism

Apple may still be getting it's cut from AT&T, but That is NOT how all phone subsidies work. The carrier pays the manufacturer a pre-determined fee based on the sale on the device. This happens at the intital sale and has absolutely nothing to do with obtaining monthly service dues. This is a new paradigm in the way manufacturers interact with carriers, it's the main reason Verozon turned Apple down, and it's the biggest issue Apple and AT&T are facing with these unlocking reports.

First, people need to understand the term 'subsidized', apparently. Subsidized phones are phones which the carrier sells to the customer for a specified cost, which is lower then the actual cost of the phone (one would hope, at least). So there's less out of pocket expense to the customer. But, because of this, the customer must sign an extended contract, because the carrier is paying part of the phone's cost for the customer.

With Apple/AT&T, it does NOT matter how much AT&T is giving apple (per each phone sold or for each month used). If AT&T is paying Apple off on installment (from the monthly fees), that's their business. However, AT&T is NOT paying any amount to cover the customer's cost that we know of (and its doubtful, since AT&T and Apple sell it for the same price). If, for example, the phone cost AT&T $700, and they sold it to you for $600, that's a subsidy. But Apple would HAVE to record it as a $700 purchase (or a 24 month fraction of it).

Now, some could argue that the phone does cost more, and AT&T is funding that money to Apple via the contract fees, but that's stretching it somewhat, since the accounting for that would need to specify that the fee is going towards the hardware purchase, not just as money going back.

As for Verizon, they turned Apple down because Apple wanted full control of the device (something else the carriers want to have for themselves, and part of the deal when purchasing the phones). Verizon wanted to control the device, and what features would/wouldn't be enabled. Basically it was a fight between two control freaks, so it was never going to happen. Apple probably also balked at the concept of subsidizing the iPhone (Apple doesn't want anyone thinking their products are cheap), so another barrier to a deal. Finally, I'm sure Verizon didn't want to pay Apple a percentage of a contract per month (why should they, they're providing the service, not apple).

All this is why I think AT&T got a crappy deal from Apple (they must've really wanted the phone). Apple gets to control everything, AT&T has to change their service model, and they also have to pay off Apple every month. And what does Apple give up? Sole licensing. Man, Apple really baked them on this...

[physguy]

Originally Posted by Louzer

With Apple/AT&T, it does NOT matter how much AT&T is giving apple (per each phone sold or for each month used). If AT&T is paying Apple off on installment (from the monthly fees), that's their business. However, AT&T is NOT paying any amount to cover the customer's cost that we know of (and its doubtful, since AT&T and Apple sell it for the same price). If, for example, the phone cost AT&T $700, and they sold it to you for $600, that's a subsidy. But Apple would HAVE to record it as a $700 purchase (or a 24 month fraction of it).

The point is that WE DON"T KNOW. There is NO 'unlocked' price. There is NO DIFFERENCE between a sale at AT&T stores and Apple stores - same price same contract requirement, same registration process, etc. etc. So WE DON"T KNOW. It is that simple. You can't infer from the 'same sales price' argument as there are not other differences (that we know of).

[solipsism]

Originally Posted by Louzer

Now, some could argue that the phone does cost more, and AT&T is funding that money to Apple via the contract fees, but that's stretching it somewhat, since the accounting for that would need to specify that the fee is going towards the hardware purchase, not just as money going back.

Which fits in perfectly with the iPhone's new 24-month accounting method.

[Louzer]

Originally Posted by physguy

The point is that WE DON"T KNOW. There is NO 'unlocked' price. There is NO DIFFERENCE between a sale at AT&T stores and Apple stores - same price same contract requirement, same registration process, etc. etc. So WE DON"T KNOW. It is that simple. You can't infer from the 'same sales price' argument as there are not other differences (that we know of).

So, what you're saying is that AT&T is not only subsidizing the phones its buying from Apple and selling, but also the phones Apple is selling?

Originally Posted by solipsism

Which fits in perfectly with the iPhone's new 24-month accounting method.

No, it doesn't. The hardware cost that's being accounted is the sale price. And its all supposed to be this way because of 'adding extra hardware features after the fact' or some such nonsense (the same reason they charged $5 for the 802.11n driver for macbook pros. (And I wouldn't be surprised if they also made the change so they can better level out their balance sheet, rather than have spikes and valleys from various product cycles).

However, the truth won't be found out until October. That's the next earnings report time, and then we'll see how they're recording the AT&T earnings (of course how they do it will depend on how much it is, for we know they record AppleTV sales under 'ipod accessories').

And then comes the other question. Does AT&T still pay apple for cancelled service, or pay Apple a proportional share of the cancellation fee? If not, then that would presume that the monthly stipend isn't for 'subsidization', but just for 'apple likes money'.

[bjojade]

Originally Posted by Rot'nApple

• Does such hacker software void any warranty with Apple if they don't have to open the casing of the actual hardware (iPhone) itself?

• What if they purchased Apple Care with iPhone and used hacker software to unlock, if Warranty IS voided, can "customer" get Apple Support with Apple Care or not, and if not, can the customer get a refund of the money paid to Apple for said Apple Care Protection since they are not going to be provided support service or is tough luck to the buyer?



"a couple who bought its phones in large numbers and resold them unlocked", but I thought, according to a lot of posters here, that if you bought it, it was yours to do with anyway you pleased?

Yes, modifying the installed software will void the warranty. No, a voided warranty does not entitle you to a refund on AppleCare. If you decided to smash your phone with a hammer, you're not going to get any warranty coverage, and you won't get a refund either.

Buying phones, unlocking them, and then reselling the unlocked phones is illegal. However, unlocking your own phone is perfectly O.K. It's minor semantics, but an important detail. Selling the tools to make unlocking should be perfectly legal as long as the tools were created in a legal way.

[TerrinB]

First, you have no idea what Apple gets. Nobody has actually provided the contract to the public. People like Gene Munster are guessing that Apple is receiving a monthly payment from AT&T.

Second, you are also wrong even if Apple is receiving a cut of the monthly fees. This is because an iPhone buyer completely pays for the hardware upon purchase. Component breakdowns show this to be the case. Otherwise, Apple would lose money for people canceling AT&T contracts.

Any money going to Apple is to pay for feature enhancements, possibly a bounty for bringing AT&T new customers, and possibly hardware support for the life of the AT&T contract. Typically, the wireless carrier provides the service for the phone. Here Apple does, so it seems likely it would takes that percentage of the money that AT&T would get for providing support for the hardware.

Originally Posted by pmjoe

Yawn. This has been gone over numerous times. The iPhone is subsidized. Apple gets money from AT&T via your service plan. That is how all phone subsidies work. If some people on this site want to pretend otherwise or Apple wants to do some kind of clever labeling of their iPhone finances, more power to you and them. I played with the numbers in another thread on this site, and Apple gets roughly the same money as other phone producers do (though they get a decent premium for getting people to switch from other carriers to AT&T).

[TerrinB]

As a lawyer, I can tell you it is unclear whether unlocking other people's iPhones for them is illegal. If the courts decide that it is, people should be outraged. When you buy hardware, you are not signing a contract, so you own it outright. As such, you have the right to do what you will with it. Moreover, when you sign a contract with somebody (e.g. AT&T), breaking the contract is not illegal. Sure you might owe the other party damages, but your action is not illegal (e.g. you cannot go to jail for doing so).

On the other hand, violating a copyright is illegal (e.g. you can go to jail for doing so). However, fair-use has long been held to be a valid defense to copyright infringement in cases where you are enhancing a device in a way that doesn't cost the vendor sales. Here, unlocking the device will not cost Apple sales, and it is enhancing the device by allowing it to connect to more networks. This is very similar to the situation Sony's Beta MaX player found itself in when it was unsuccessful sued by the networks for facilitating copyright infringement. AT&T might be mad about people copying Apple's software in order to modify it, but it doesn't own any copyrights to the iPhone. Accordingly, the only way it can sue over Apple's copyrights is if Apple gave it a license to do so. We certainly do not know if Apple did.

The only kink in the works for consumers is the DMCA, which really is an anti-copyright act. People suing under the DMCA are not complaining that their copyright has been violated. No, they are complaining that the anti-copying mechanism protecting their copyrighted work has been circumvented. Companies love the DMCA because they never have to sue over copyright infringement, where often they will lose. The DMCA is heavily aimed at the makers and distributors of unlocking tools. It punishes them even when the unlocking by the consumer would be legal.

Other then the talked about unlocking exception, the DMCA also has a reverse engineering for interoperability exception. I have not read the DMCA in a while, but I suspect you can make a good argument that reverse engineering the iPhone is protected under the DMCA.

Ultimately, the consumer generally loses unless a big business has the same interests as the consumer. This is because the Copyright Board is filled with two types of people. Those who eventually want higher paying jobs at the companies lobbying it, and those who have already worked for those companies.

Originally Posted by bjojade

Buying phones, unlocking them, and then reselling the unlocked phones is illegal. However, unlocking your own phone is perfectly O.K. It's minor semantics, but an important detail. Selling the tools to make unlocking should be perfectly legal as long as the tools were created in a legal way.

[physguy]

Originally Posted by Louzer

So, what you're saying is that AT&T is not only subsidizing the phones its buying from Apple and selling, but also the phones Apple is selling?

What part of WE DON'T KNOW is unclear. I could easily write a contract that did that. The motivation would be to create a uniform user experience which you might have noticed is high on Apple's list. AT&T still reaps the contract benefit. Apple would just be an AT&T reseller in that case, wrt to iPhones. Again, please don't put words in my mouth. We don't know.

[TerrinB]

I disagree to the first part of your response. Realistically you can modify your software all you want provided it doesn't damage your hardware. The iPhone comes with a system software restore option. Provided you restore the software, Apple would not likely reject the warranty because it will not likely know you modified the software.

I agree with the second part of your response. If you violate your warranty, Apple will not refund your Apple Care.

Originally Posted by bjojade

Yes, modifying the installed software will void the warranty. No, a voided warranty does not entitle you to a refund on AppleCare. If you decided to smash your phone with a hammer, you're not going to get any warranty coverage, and you won't get a refund either.

Buying phones, unlocking them, and then reselling the unlocked phones is illegal. However, unlocking your own phone is perfectly O.K. It's minor semantics, but an important detail. Selling the tools to make unlocking should be perfectly legal as long as the tools were created in a legal way.

[murphyweb]

Originally Posted by pmjoe

Yawn. This has been gone over numerous times. The iPhone is subsidized. Apple gets money from AT&T via your service plan. That is how all phone subsidies work. If some people on this site want to pretend otherwise or Apple wants to do some kind of clever labeling of their iPhone finances, more power to you and them. I played with the numbers in another thread on this site, and Apple gets roughly the same money as other phone producers do (though they get a decent premium for getting people to switch from other carriers to AT&T).

NO IT IS NOT!! Jesus, get it through your bloody small heads. The iPhone is not subsidised!!!

A subsidised phone remains the property of the NETWORK OPERATOR untll the contract and therefore the handset is paid off. If you break your contract they have a legal right to take the phone from you. The iPhone is not sold as such, the iPhone is your property once you have bought it. Can we please put an end to this now?

Originally Posted by solipsism

Which fits in perfectly with the iPhone's new 24-month accounting method.

No, No, No. The iPhones 24 month accounting method is just following a standard accounting practise for goods or services that raise revenues on an ongoing basis. Plenty of companies account for revenue in this way. Seen as AT&T are giving Apple some kind of kick-back on the monthly contracts then this makes perfect sense.

In fact, if the iPhone was subsidised i imagine that the opposite may be true, the network is actually buying the handset upfront from the manufacturer so for reporting purposed the whole cost of the handset could be accounted for at time of sale. (the actualll payment of money is not important, it is the invoice amount that counts).

[melgross]

Originally Posted by pmjoe

And no the DCMA has nothing to do with phones. DMCA was designed to protect digital media copyrights, i.e. audio, video, books, etc. If you hacked the iPhone to illegally play DRM'd music/video or read DRM'd e-books, then you'd be volating DMCA. You bought the phone, you can do pretty much whatever else you darn well please with it.

I presume AT&T has a early termination fee in place to protect themselves from people unlocking the phone?

The DMCa has nothing to do with ANY hardware. It's the software portion it deals with. The unlocking allowance by the Registrar was solely for the purpose of allowing a phone to make, and accept, calls on another phone network. It doesn't deal with anything else.

The DMCA was designed to deal with every copyright infringement. Not just for music video or books, but for programs as well, as an example. There are other items it covers.

ATT has a termination fee for all it's clients. The fee for iPhone clients is the same as for anyone else.

EDIT: Let me be more clear here. The DMCA was designed to deal with the prevention of breaking the encryption designed to prevent copyright infringement. It doesn't actually deal with the copyrights themselves.

As far as that goes, absurd as it might be, you still enjoy the rights that licensees enjoy with regard to fair use.

You just can't actually do it because of the encryption software that you are not allowed to circumvent in order to enjoy those rights.

[melgross]

Originally Posted by solipsism

Apple may still be getting it's cut from AT&T, but That is NOT how all phone subsidies work. The carrier pays the manufacturer a pre-determined fee based on the sale on the device. This happens at the intital sale and has absolutely nothing to do with obtaining monthly service dues. This is a new paradigm in the way manufacturers interact with carriers, it's the main reason Verozon turned Apple down, and it's the biggest issue Apple and AT&T are facing with these unlocking reports.

The main difference here is that Apple gets the money instead of the customer getting it back in form of a subsidy.

Apple is making more profit, but keeping the price higher for us.

[melgross]

Originally Posted by TerrinB

I disagree to the first part of your response. Realistically you can modify your software all you want provided it doesn't damage your hardware. The iPhone comes with a system software restore option. Provided you restore the software, Apple would not likely reject the warranty because it will not likely know you modified the software.

I agree with the second part of your response. If you violate your warranty, Apple will not refund your Apple Care.

That's true. This is the same as the principle (though it's not necessarily ethical on the part of the consumer) of removing any third party hardware from your computer before bringing it in for repair even if the reason for the damage was that very same third party hardware.

[kenaustus]

The issue of unlocked iPhones is an odd one and based on the desire of a lot of people to have one - but not use ATT. Considering the investment ATT made to be "iPhone compliant" I assume that they will be vigorous in protecting their investment.

On the Apple side, I wouldn't be surprised if there is not a clause in the ATT/Apple agreement that requires Apple to make reasonable efforts to hinder unlocking iPhones.

The reality is that, at this time, there are only a few features, like visual voicemail, that a user would loose if they unlock their phone and go with another carrier. The question now is what will Apple deliver in the future in terms of restricted features that will only work with authorized carriers? New apps, firmware updates? That is the beauty of using OS X on the iPhone - Apple can enhance ATTs service while denying unlocked iPhones the benefit of the apps or upgrades.

Personally I would like to see an iPhone user being able to go to another country that has iPhones, get a local SIM card from the iPhone carrier and use it as a local mobile. With the UK, France and Germany getting lined up I wold hope Apple works the contracts to allow that.

Otherwise I don't see any great benefit in an unlocked iPhone. Especially if Apple delivers a new iPod next week that is basically an iPhone without the phone part.

[physguy]

Originally Posted by murphyweb

NO IT IS NOT!! Jesus, get it through your bloody small heads. The iPhone is not subsidised!!!

A subsidised phone remains the property of the NETWORK OPERATOR untll the contract and therefore the handset is paid off. If you break your contract they have a legal right to take the phone from you. The iPhone is not sold as such, the iPhone is your property once you have bought it. Can we please put an end to this now?

What you state is certainly one way of subsidizing a phone purchase but it not the only was to subsidize a phone purchase. If Apple takes a lower margin on the upfront sale of the iPhone because they will be compensated by continuing revenue streams from AT&T, that is a form of subsidy. Saying it differently, if AT&T were not paying them from the contract fees Apple would have had to charge more for the iPhone to make the same amount of profit. That is a subsidy. AT&T is paying money to Apple for YOUR purchase of an iPhone.

While Apple MAY add functionality to the iPhone (and I certainly believe they will) they have no legal obligation to do so. I did read my contract and license and nowhere did I see that I may return the iPhone for a refund of any kind (partial or otherwise) if Apple fails to add functionality, nor that Apple can committed to add functionality. Its the usual as-is type of software license.

The account/revenue recognition method and justification are separate issues from the business decision driven by total cost and cash in the door.

[murphyweb]

Originally Posted by physguy

What you state is certainly one way of subsidizing a phone purchase but it not the only was to subsidize a phone purchase. If Apple takes a lower margin on the upfront sale of the iPhone because they will be compensated by continuing revenue streams from AT&T, that is a form of subsidy. Saying it differently, if AT&T were not paying them from the contract fees Apple would have had to charge more for the iPhone to make the same amount of profit. That is a subsidy. AT&T is paying money to Apple for YOUR purchase of an iPhone..

No it bloody is not, a subsidised phone is one which the network operator has actually subsidised the cost of to allow it to gain a competitive advantage in the market place. The iPhone is not subsidised. Maybe the iPhone would have cost more if Apple never had a deal in place to take a share of revenues from the iPhone but that does not make the handset subsidised by AT&T at all, it just means that Apple have another revenue stream.

As i have said in other posts however, i believe that the iPhone will have to be subsidised in the UK market when it is released because by law the iPhone will have to be unlocked if requested by a customer and therefore unless subsidised by the network there is nothing in it whatsoever for the network operator and no guarantee of future revenue for Apple.

[bsenka]

Originally Posted by bjojade

Buying phones, unlocking them, and then reselling the unlocked phones is illegal.

I know that is the general consensus, but I don't think it would hold up to a proper challenge. People sell modified versions of all kinds of things. The Modbook comes to mind, as well as the myriad of car tuners out there. They buy an off the shelf product, modify it in ways that the manufacturer never intended, void the warranty, and resell the product at a value added price.

[melgross]

Originally Posted by murphyweb

No it bloody is not, a subsidised phone is one which the network operator has actually subsidised the cost of to allow it to gain a competitive advantage in the market place. The iPhone is not subsidised. Maybe the iPhone would have cost more if Apple never had a deal in place to take a share of revenues from the iPhone but that does not make the handset subsidised by AT&T at all, it just means that Apple have another revenue stream.

As i have said in other posts however, i believe that the iPhone will have to be subsidised in the UK market when it is released because by law the iPhone will have to be unlocked if requested by a customer and therefore unless subsidised by the network there is nothing in it whatsoever for the network operator and no guarantee of future revenue for Apple.

Apple's biggest problem abroad will be convincing the operators to write the software for the Visual Voicemail, and integrate it into their networks. Apparently, that took a lot of work from ATT.

The question is: Will they do it? And, is there enough time?

[Project2501]

Originally Posted by physguy

If Apple takes a lower margin on the upfront sale of the iPhone because they will be compensated by continuing revenue streams from AT&T, that is a form of subsidy.

Yes, that is sort of an subsidy, but not something, that you or Apple can account anyway. There is no way to know that after purchase the customer will open at&t contract or keep it active for 2 years. That would only be accountable if at&t paid for Apple even if the phone is never used in it's network. If that's the case, more respect to the Apple, and still in that case why would Apple really care if the phone gets unlocked or not?

[ecking]

Who on earth would give that kid a Nissan 350Z and 3iPhones for 1 unlocked one!?

[melgross]

Originally Posted by ecking

Who on earth would give that kid a Nissan 350Z and 3iPhones for 1 unlocked one!?

There are a lot of stupid people out there.

[ouragan]

If I own an iPhone, I can modify it any way that I please. And the manufacturer of the iPhone doesn't retain ownership as iPhones are sold, not leased.

Any attempt by Apple or ATT to refrain an owner from using the iPhone with another cellphone service is illegal (because they are not the owner of the iPhone) and violates consumer and competition laws.

If you buy a television set, you can choose to watch any station at the time you want. There are no legal restrictions on your right of ownership. The same is true for iPhones. If you buy it, you own it. If you break it, it's your loss!

Apple cannot prevent you from enjoying the full benefits of owning an iPhone. But it would be different if Apple or ATT were leasing iPhones for a monthly charge, with or without a yearly subscription or lease.

The Apple VP of Legal Affairs was paid an $18 million signing bonus in 2006, but his legal advice is damaging Apple and its long term success in the public.

When are the American antitrust authorities going to act? When is California going to protect consumers?

[netdog]

Originally Posted by roehlstation

Go ahead, unlock them, then we'll get to hear reports from people whining because all the features don't work right. You know that's what'll happen. I'm certain they'll be unlocked eventually, it just makes more sense at this point to leave it with one carrier until they are certain everything will work correctly.

It would appear that someone from AT&T customer relations has entered our midst.

[cnocbui]

Originally Posted by ecking

Who on earth would give that kid a Nissan 350Z and 3iPhones for 1 unlocked one!?

"Terry Daidone, the founder of Certicell gave him the car plus 3 8GB iPhones which George is sharing among his team."

[pmjoe]

Originally Posted by netdog

It would appear that someone from AT&T customer relations has entered our midst.

and people from Apple who feel the need to justify their clever accounting for the SEC.

[Louzer]

Originally Posted by ouragan

If I own an iPhone, I can modify it any way that I please. And the manufacturer of the iPhone doesn't retain ownership as iPhones are sold, not leased.

Any attempt by Apple or ATT to refrain an owner from using the iPhone with another cellphone service is illegal (because they are not the owner of the iPhone) and violates consumer and competition laws.

Ah, but keep in mind, then, that if an Apple update fries your modified phone for some reason, its not Apple's fault. Nor is Apple then responsible for allowing you to install any updates to the iPhone OS after you've made your modifications.

[physguy]

Originally Posted by Project2501

Yes, that is sort of an subsidy, but not something, that you or Apple can account anyway. There is no way to know that after purchase the customer will open at&t contract or keep it active for 2 years. That would only be accountable if at&t paid for Apple even if the phone is never used in it's network. If that's the case, more respect to the Apple, and still in that case why would Apple really care if the phone gets unlocked or not?

1) That is a subsidy as I take it but if you look up the definition of subsidy you'll note that NO phones are subsidized, as the all the definitions I found require that a government be the source of a subsidy .

2) It can be accounted for, depending on the contract and because of the locking - so I fully agree with your statement about Apple caring about the locking. Because its locked and unusable without activation (ignoring the unlocking efforts) from an accounting perspective it is reasonable to assume that all phone purchases will result in an AT&T contract (the non-activators would just be accounted as a small loss). Then, given that the AT&T contracts have a cancellation fee and there are establish patterns for estimating the % of cancellations, and IF Apple gets part of the cancellation fee then this is all easily accountable as a 'subsidy'. Once again it depends on the contract structure and details which we don't know.