Customer lock-in and US mobile market

Dated story from The Unofficial Apple Weblog hints at the sad state of competition in the US wireless market. As the release date for the second-generation iPhone draws near, news stories pointed out that AT&T and Apple are trying harder to lock down the phones. The widespread use of jailbreaking on first generation phones caused AT&T to miss out on significant revenue as customers bought the devices  without any intention of signing up for the corresponding wireless service. This time around buyers are forced encouraged to surrender the money upfront: phones are pre-bricked according to CNet and must be activated in the store, along with minimum 2 year commitment to a wireless contract. (AT&T to Apple customers: “submit to our authority!”) Expect delays as the purchase itself got complicated by doing credit checks and all the other ceremonies that go with signing up for service plans.

It is still possible to purchase the device itself, but at steep premium. This is standard in the US market where phones are subsidized by the wireless service contract, and sold below cost. There are early-termination fees in case the user decides to part ways with the carrier before they generated enough revenue to offset the cost of the subsidy.  But there is still a gap in the logic as the TUAW points out in the article Doing the wacky AT&T math: it is still more economical to sign up for the contract and then break it after one month instead of purchasing the unlocked device.

On that note, Jonathan Zittrain was at Google NYC yesterday to talk about his recently published book “The Future of the Internet and how to stop it.” One of the highlights from the presentation involved a picture of Steve Jobs on stage discussing the application approval process for iPhone, describing the criteria used to decide when code is unworthy of running on the sacred device. Alongside the usual suspects “malicious” and “bandwidth hog” were one that captured Apple’s attitude towards open platforms: “unforeseen.”


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