iPhone liquidity: Why an unlocked Phone in the US matters

The iPhone is now available in the US unlocked. Judging by the lack of reaction to the news, one would assume that this is not a significant event. I would argue however that it’s a very significant event.

What is unappreciated is that the iPhone is a very restricted product. Unlike any of Apple’s other products (iPod, Mac and iPad), the iPhone is designed to be hard to get. Apple did not make it easy in the one dimension of ease that matters most: its purchase.

Consider that many people in the world cannot buy an iPhone because it’s not available locally. In case it is, in most cases you need to sign a contract and commit to a long-term relationship with a company other than Apple. In those cases where you don’t sign a contract, you cannot use it with a service provider other than the one (arbitrarily) chosen for you.

A few have been able to buy iPhones unlocked if they lived in a few countries (UK, France, Australia, Belgium, Hong Kong[1]) but those phones could only be purchased online if sent to a local address or in an Apple retail store–of which there are not many.

Consider that in Europe alone, the following countries do not have iPhone distribution: Albania, Armenia, Azerbaijan, Belarus, Bosnia, Georgia, Iceland, Kazakhstan, Serbia and Ukraine. The populations total over 100 million people. In Asia the number of countries without iPhone distribution outnumber those with distribution. Add in Africa, Latin America and the Middle East and the unaddressed market begins to look very large.

If you contrast this with every other phone platform out there, Blackberry, Android or Symbian, the iPhone is extremely restricted and the number of people that are permitted to buy it much more limited. The number of operators supporting Blackberry outnumber the iPhone at least by a ratio of two to one.

Then there is the matter of distributors. This is a channel that iPhone does not leverage. Distributors account for more than half of Nokia’s volumes. They buy in bulk and resell (sometimes illegally or in violation of contracts) vast quantities of phones.

By offering unlocked iPhones in the US, the restriction on distribution is lifted to a large degree. What’s different is that these phones can be purchased in 200+ retail locations. Many of these locations are in tourist hubs where there are large diaspora communities rotating continuously back to home countries. iPhones can now be purchased with cash and become as good as cash.

And this is not a new phenomenon. When the original iPhone was available, Apple had to restrict buyers to 5 per person and stopped accepting cash because of the huge grey market demand. The same thing happened with the original iPad and with iPad 2 lines are still forming for it because distribution is so restricted. Consider also that sales in Verizon stores pale in comparison with those for GSM products.

The way to think about it is that the iPhone has just become more “liquid” and it can now flow to parts of the world where it has been difficult to acquire. The iPhone was already liquid to some degree with unlocking and sales through Hong Kong/UK, but the US market’s retail footprint and the lower costs that result will boost liquidity dramatically and probably increase volumes substantially.

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Note:

1. According to Apple, the following 27 countries offer phones which are not “locked to carrier” : Belgium, Czech Republic, Finland, Germany, Greece, Italy, Luxembourg, Russia, Slovakia, Turkey, Hong Kong, India, Indonesia, South Korea, Macau, Malaysia, New Zealand, Singapore, Taiwan, Thailand, Vietnam, Bahrain, Kuwait, Qatar, Saudi Arabia, United Arab Emirates, South Africa