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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12 thoughts on “Can an open GPhone kill the restrictive iPhone?

  1. 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!

  2. 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!

  3. 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.

  4. 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.

  5. 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.

  6. 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?

  7. 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 🙂

  8. 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.

  9. 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 🙂

  10. 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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