Can an open GPhone kill the restrictive iPhone?

Imag­ine you buy a car that comes with a 2 year war­ran­ty on defec­tive parts and 3 free ser­vic­ing trips. But what if those were valid only if you filled fuel from a spec­i­fied provider — say Indi­an Oil or Shell? Or you buy a DVD play­er or home the­ater that can only play movies pro­duced by Uni­ver­sal? Sounds ridicu­lous, right?

I’ve always been sur­prised how Apple gets away with its restric­tive poli­cies while Microsoft gets dragged into court over anti-trust laws for any­thing and every­thing. Until recent­ly, you couldn’t run Win­dows on a Mac, while you could always run even Lin­ux on a PC. You could choose whether you want­ed an Intel or AMD proces­sor to pow­er your PC, but no such choice with the Mac, until recent­ly. iPod doesn’t work with any­thing except iTunes. And the iPhone doesn’t work with any cel­lu­lar ser­vice provider except AT&T.

Apple_iPhone2_270x202 It was one thing with com­put­ers, but anoth­er with cell phones. The cell phone mar­ket is much, much big­ger. How long will this restric­tive prac­tice of bind­ing you to a spe­cif­ic ser­vice provider work? The rea­sons why Apple did it are clear. Apple gets a month­ly rev­enue cut from AT&T for each iPhone user. Though some say that there are alleged ben­e­fits to this restric­tive pol­i­cy, it just doesn’t cut it for me. After all, these rev­enues are not com­pa­ra­ble to what Apple gets from the actu­al sale of iPhones.

Well, the inevitable has already hap­pened. The iPhone is now unlocked. What this means is that any­one any­where in the world can buy an iPhone in the US (or get their friends to buy it for them) and use it in their coun­try. Yes, so you can now use the iPhone in India. Read the orig­i­nal Engad­get news here. The sec­ond image below shows the iPhone work­ing with the T-Mobile ser­vice provider in the US.

Is it ille­gal in the US to unlock your iPhone? Engad­get says no, as long as you’re doing it for your per­son­al ben­e­fit, and and agree to forego your war­ran­ty and Apple sup­port. Pre­dictably, the sec­ond team devel­op­ing such an unlock­ing soft­ware has already received threat­en­ing calls from AT&T’s legal team. Being one of the worst ser­vice providers in the US in terms of qual­i­ty, they need to get their act togeth­er quick­ly!

How will the iPhone be mar­ket­ed out­side the US? How can Apple force con­sumers in Europe and fastest grow­ing cel­lu­lar phone mar­kets like India to select Apple’s choice of ser­vice provider? I just don’t think it’s pos­si­ble. And if that’s true, can Apple have dif­fer­ent mar­ket­ing strate­gies for the US and out­side the US?Can the iPhone with­stand com­pe­ti­tion if an equal­ly sophis­ti­cat­ed tele­phone were to offer users their choice of providers?iphone-unlocked-01

The Busi­ness Stan­dard has just bro­ken a sto­ry that has made head­lines all over cyber­space. It says the Google Phone, or GPhone, is just two weeks away from an inter­na­tion­al launch:

Talks are believed to be tak­ing place with Bhar­ti Air­tel and Voda­fone Essar, respec­tive­ly India’s first and third largest mobile tele­pho­ny oper­a­tors, and state-owned Bharat San­char Nigam.
Sources close to the devel­op­ment said a simul­ta­ne­ous launch across the US and Europe is expect­ed, and announce­ments would be sent to media firms in India and oth­er parts of the world. US reg­u­la­to­ry approval, which is expect­ed soon, is the only hur­dle that Google is wait­ing to cross, they added. Google plans to invest $7–8 bil­lion for its glob­al tele­pho­ny for­ay.

TechCrunch gives a nice sum­ma­ry of the his­to­ry of the GPhone rumors and says that a 3G GPhone world­wide release can be a strong com­peti­tor to the iPhone. Also see this Com­put­er­World arti­cle that quotes the Wall Street Jour­nal. If you’re skep­tic about whether Google will indeed for­ay into con­sumer elec­tron­ics, or sim­ply want to know how study­ing a company’s job list­ings is being used for com­pet­i­tive analy­sis, I’d high­ly rec­om­mend this Forbes arti­cle.

So, will the GPhone kill the iPhone? I believe it can, pro­vid­ed Google comes up with some­thing com­pa­ra­ble to the iPhone. And just like Apple eased its restric­tive poli­cies with oth­er prod­ucts, I think it will soon have to warm up to the com­pe­ti­tion in this case.

Pho­to Cred­its: CNET, Engad­get.

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  • Anti-trust — it becames an issue only if you are a monop­oly or accused of being one. You can­not com­pare it to Apple and the iPhone here.

    The restrict­ed avail­abil­i­ty of the iPhone (and of all wire­less com­pa­nies to AT&T — lol!) is indeed some­what puz­zling — but I can think of a cou­ple of rea­sons why Apple may have gone for this:
    1. The restric­tion meant lim­it­ed avail­abil­i­ty which feeds the hype more or an imme­di­ate dud — but I think they had a feel­ing giv­en iPod’s suc­cess. You hit a home run with the design, then peo­ple rave and drool. It increas­es demand soon out­weigh­ing the sup­ply over­whelm­ing­ly, and it will become a rage, a mania. And that’s exact­ly what it was. In a sense, it is like those “lim­it­ed edi­tion”, “lim­it­ed avail­abil­i­ty” cars. In some cas­es they are award­ed “instant clas­sic” sta­tus the year they hit the mar­ket.
    2. AT&T need­ed it more than Apple. In oth­er words, AT&T need­ed the Apple hype more. It left the mar­ket and is reen­ter­ing.

    But still Apple — to AT&Twireless? Come on!

  • Ian from www.thenewsroom.com

    Not when folks are come­ing out with meth­ods like this: http://thenewsroom.com/details/633981?c_id=wom-bc-js

  • Arun: Antitrust is def­i­nite­ly an issue here. Antitrust laws also apply to busi­ness prac­tices that ‘attempt to monop­o­lize’. It is not required that one should be estab­lished or accused of being a monop­oly for the antitrust laws to apply. US Con­gress has already had hear­ings on the issue. The AT&T-Apple deal for the iPhone may con­sti­tute what is termed as ille­gal tying in antitrust nomen­cla­ture.

    This is in fact said to be a pos­si­ble legal offen­sive against Apple’s tight­ly con­trolled ecosys­tem strat­e­gy. This blog arti­cle fur­ther rumi­nates about the deal’s antitrust impli­ca­tions in EU and India.

    Regard­ing your com­ments about restrict­ed avail­abil­i­ty — I’m not sure if the iPhone avail­abil­i­ty was restrict­ed in terms of num­bers or vol­umes. You are right on spot regard­ing AT&T need­ing it more — I think they’ll be more des­per­ate than Apple about the hack!

  • I would think that Apple is not like­ly to get dragged into an anti-trust law­suit till it has a mar­ket pen­e­tra­tion of 70% or above, which it is not like­ly to have with the iphone or the mac range of com­put­ers. MS has a 90+ % mar­ket share of Win­dows, which explains why bundling IE with it was such a restric­tive move.
    But on the oth­er hand, the ipod does com­mand a huge mar­ket share. But the restric­tions on the ipod are most­ly because of the music pub­lish­ers — uni­ver­sal, bmg and co, and not because of apple. They insist on DRM. The prob­lem with music from oth­er providers (oth­er than iTunes) is sim­ply the use of a dif­fer­ent kind of DRM. It will be mighty dif­fi­cult for Apple to sup­port 10 dif­fer­ent kinds of DRM when Jobs him­self believes that DRM is a stu­pid idea. In fact, DRM-free music from any­where (as long as its mp3, aac or a stan­dard for­mat) does play on the ipod with no prob­lems.

  • Ashok, I agree with you as far as the US is con­cerned, regard­ing both the iPod and iPhone. I don’t know if such a sin­gle-provider exclu­siv­i­ty deal will work for the iPhone in the EU though.

  • I am SO hap­py to hear that I can get an iPhone to India. Tell me you are not kid­din’ me?!
    You mean I can use it as a reg­u­lar phone with any provider, using a SIM card??
    IMHO, the iPhone has already reached an icon­ic sta­tus, prob­a­bly more than the iPod. Hence the GPhone is not going to cut it for those keen on the iPhone.

  • Ram­bodoc: yes, you can! You just have to buy the unlock­ing soft­ware (price not known yet).

    The news is too fresh to know the ram­i­fi­ca­tions if you do use the unlock­ing soft­ware. Will Apple devel­op a block for it? We don’t know.

    I don’t think the iPhone has reached an icon­ic sta­tus yet. It hasn’t grabbed any sig­nif­i­cant mar­ket share in the US. Folks are just too unhap­py being forced to use AT&T.

    What if they force you to use a cer­tain provider in India? Will it become as pop­u­lar as the iPod?

  • mahen­dra — iPhone is a new prod­uct from a com­pa­ny enter­ing a new mar­ket. I don’t under­stand the “attempt to monop­o­lize” bit. For starters, they at least would have to pre­vent AT&T from sell­ing any oth­er phone. Right now, it is just anoth­er high-end phone in the mar­ket — but one that has grabbed a lot of atten­tion. Black­ber­ries are still very pop­u­lar. For the low­er-end, I see RAZRs every­where.

    Also, the fact that AT&T is just one wire­less provider is a fair­ly big fac­tor in lim­it­ing the avail­abil­i­ty in the US. They have very strong com­peti­tors like Ver­i­zon, T-Mobile etc. The wire­less provider mar­ket is crowd­ed with no clear leader. How­ev­er, take the Black­ber­ries and Motoro­la RAZRs. They are avail­able from all these guys — that’s the dif­fer­ence with iPhone. But, this is not new. I have seen ads like “Get the new blah-blah phone. Avail­able ONLY from Ver­i­zon/T-Mobile”. Even now, not every mod­el, every col­or is avail­able from every provider. So this game has been played by oth­ers too for a while. I think Apple and AT&T are quite safe here.

    With Microsoft, I believe one of things which got them in trou­ble is that even though they had almost all mar­ket share, they forced PC man­u­fac­tures to fork mon­ey to them even if they installed Lin­ux and sold it. So they made mon­ey whether their OS or anoth­er OS was sold with every PC 🙂

  • Arun, let me try to make my per­spec­tive more clear:

    1. There is a dif­fer­ence between dis­cussing the a> like­li­hood that Apple will get into trou­ble with Antitrust laws, and b> legal­i­ty of Apple’s tie-up with AT&T in the con­text of antitrust laws. I com­plete­ly agree with you and Ashok that Apple is not like­ly to get into trou­ble in the US.

    2. How­ev­er, as I’ve point­ed out even in the com­ments, I do not think Apple will so eas­i­ly get away (with such a deal) with the anti-com­pet­i­tive EU laws.

    3. Even if Apple is not like­ly to get into trou­ble in the US, I was dis­cussing the applic­a­bil­i­ty of antitrust laws in this case pure­ly from an aca­d­e­m­ic per­spec­tive. “Attempt to monop­o­lize” means the antitrust laws are applic­a­ble to any new prod­uct from any new com­pa­ny enter­ing any new mar­ket.

    4. Apple doesn’t have to pre­vent AT&T from any­thing to get into trou­ble. If you read the “ille­gal tying” link in my pre­vi­ous com­ment, it will help. “A tying arrange­ment is an agree­ment by a par­ty to sell one prod­uct but only on the con­di­tion that the buy­er also pur­chas­es a dif­fer­ent prod­uct.”

    5. Ads like “get new blah-blah phone, avail­able ONLY from Ver­i­zon/T-Mobile” do not con­sti­tute ille­gal tying. Because you can choose to use any oth­er phone you like with their ser­vice too. If Ver­i­zon/T-Mobile force you to choose a par­tic­u­lar phone if you want to sub­scribe to their ser­vice, then it will fall under the ille­gal tying cat­e­go­ry. I do not think AT&T forces you to choose the iPhone either, so AT&T is not in any trou­ble.

    6. Regard­ing Microsoft, I com­plete­ly dis­agree. They didn’t earn a pen­ny from PC mak­ers who did not ship PCs installed with DOS/Windows. The fact is that almost all PC mak­ers installed DOS and then Win­dows, and some users installed Lin­ux after­wards. Those PC mak­ers who did not install OEM-licensed Microsoft prod­ucts didn’t have to shell out any­thing to Microsoft. It all start­ed with IBM, who had mar­ket share, and agreed to install DOS on every PC. But we digress…

    7. And while we’re on this top­ic, let me also make it clear that I’m against US antitrust laws in their present shape. I’m all the more aghast when they’re used in a dis­crim­i­na­to­ry fash­ion, depend­ing upon which lob­by is pay­ing how much to whom in Wash­ing­ton.

  • But mahen­dra — I guess I don’t get it. Where is the attempt to monop­o­lize *the mar­ket*? Regard­ing EU and ille­gal tie-ups, I will con­fess igno­rance.

    #6: I may be remem­ber­ing things wrong, but I thought Win­dows’ OEM pric­ing was depen­dent on this and it was one of the issues raised in the case. Of course, the pri­ma­ry thing was they were using their share on one mar­ket (OS) where they were con­sid­ered a monop­oly, to enter and take-over oth­er mar­kets (brows­er, media-play­er).

    #7: That applies to many many things in the US 🙂

  • Arun, I give up try­ing to explain fur­ther…:-)

    #6: Regard­ing Microsoft, OEM pric­ing was depen­dent on the vol­ume of PCs with Win­dows sold and vol­ume of PCs with­out Win­dows sold. Those sell­ing high­er Win­dows PCs were giv­en bet­ter OEM rates. That is com­plete­ly dif­fer­ent from what you’ve alleged above — that they made mon­ey whether Win­dows was installed on the PC or not. Please see the Wiki arti­cle on the crit­i­cism of Microsoft’s OEM licens­ing.

    #7: Yes, I know! 🙂

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