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Apple unlocks iPhone and new opportunities for distribution

Apple is offering an unlocked version of the GSM-based iPhone 4 in the United States for the first time as it looks to buoy already strong iPhone sales in an increasingly competitive market.

The move reflects the growth in the smartphone market, with handset sales dominated by carriers who offer mobile phones at highly subsidized rates with a contract. Consumers can purchase the unlocked iPhones directly from Apple and not have to sign a contract with AT&T.

?The smartphone market is increasingly competitive and Apple realizes that it has to move away from the old exclusivity model to maintain market share in the U.S.,? said Mike Roberts, principal analyst and head of Americas at research firm Informa Telecoms & Media, Westborough, MA. ?The move expands its addressable market in the U.S. beyond just customers of AT&T and Verizon Wireless.

?The move does suggest that Apple will move relatively quickly to use as many distribution channels as possible to maintain and increase sales in the US, whether on its own Web site or via potential new carrier partners such as Sprint and T-Mobile USA,? he said.

Despite the immense popularity of the iPhone, however, the move isn?t expected to have an immediate effort on iPhone sales in North America.

?Even though the Apple iPhone is popular and draws tons of consumer interest, I don?t think this is enough to revolutionize the market,? said Alex Spektor, handset analyst at Strategy Analytics, Newton, MA. ?This is an incremental advantage for Apple in terms of sales.?

One of the reasons why this is expected to have minimal impact is that most U.S. consumers are happy with the dominant method of getting a mobile phone at a highly subsidized price when they sign a contract with a carrier. This means consumers get a phone either for free or for a price that is typically lower than $200.

Apple did not respond to a request for comments by press deadline.

Future impact
Apple is charging over $600 for the four iPhone 4 phones that can be purchased unlocked.

The move, however, could suggest that Apple is looking to broader availability for future versions of the iPhone.

?The move is less significant in what it covers today and perhaps more significant as an indicator of what might come with future iterations of the iPhone,? said Noah Elkin, senior analyst at eMarketer, New York.

Mr. Elkin speculates that the move might indicate Apple is planning to release the next version of the iPhone across all carriers in the U.S.

?Therefore having an unlocked phone would be more significant because it would give a greater degree of freedom to consumers,? he said.

Unlocked phones address the small minority of consumers who want more flexibility with their mobile phones.  These are consumers who are willing to pay full price for a mobile phone in order to have flexibility of not having a contract.

One group of consumers this might appeal to is travelers, who can purchase prepaid mobile access in other countries and avoid roaming charges.

Wanderlust
?Unlocked iPhones are already available in other markets such as Canada and the UK, and appeal to travelers who want to use a SIM card and service from a local operator to avoid roaming charges,? Mr. Roberts said.

However, because there are only two major GSM carriers in the U.S. ? AT&T and T-Mobile -- consumers who buy an unlocked phone are still limited in their options.

?Anyone buying an iPhone for a network other than AT&T would not be able to use it at 3G speed so they would be losing some of the experience,? Mr. Spektor said.

The reason this is happening now is that AT&T no longer has the exclusive rights to the iPhone.
Apple has made similar moves in other countries.

In the United Kingdom, which is a subsidized market as well, Apple started selling unlocked iPhones when it was no longer exclusive with one carrier.

In the rest of Europe, where multiple carriers work on the same standards, this kind of flexibility offers more value.

Others have also tried to offer mobile phone owners more flexibility.

Carriers in the past have offered customers who want the latest new phones the opportunity to buy them at unsubsidized prices without the need to commit to a contract.

Google also tried to sell the Nexus 1 phone directly to consumers a few years ago.

While these efforts did not provide much of a draw for consumers, the fact that Apple is now treading in the same waters could

?Apple has shown an ability to disrupt the market not only for devices but in terms of relationships between device manufacturers and carriers,? Mr. Elkin said.

?It would not be unimaginable for Apple to do this again in another way,? he said.