December 6th, 2006

Unlocked Cell Phones – Do Carriers Want These Customers?

I recently tried to get a data-only account on an unlocked GSM phone so that I could use it internationally. I had no idea how hard it would be – no carrier seemed to want me as their customer.

First, I tried the phone. As an American consumer of wireless services, I expect something for free for signing on to a one or two year contract. I wanted a “deal” or an incentive for signing on. They kept offering me a free phone. I kept saying, “I have a phone. What else can you do for me? Why should I be your customer?” They had no answer. There just seemed to be the free, mid-tier phone that I didn’t want. ???

I tried the phone again. This time I called a provider with whom I had a prepaid account with a balance – apparently a balance of over $400 due to some bonus points/minutes. I wanted to convert my prepaid credit into postpaid minutes on the new account. They wouldn’t do it. They wouldn’t tell me why – the answer was simply “no.” I guessed that the revenue has already been “booked” (though the minutes aren’t used) in the prepaid division and they have no reason to give it up even though in theory it’s one company.

I also didn’t want to commit to a one-year contract – didn’t understand why I should. If I am paying the “registration and set-up” fees, why should I have to commit to a one or two year contract. (In the end, I did not win this battle.)

Next, I tried a retail location. The kids working in the store totally “got it.” They drooled over the “unlocked” phone and talked about how they really wanted the same one or something similar. They then got on the phone with their own company (wireless service provider) and argued my case for more than 40 minutes before giving up. [At this point, I had given up on getting an incentive - I simply wanted my balance transferred].

Finally the folks at the store sent a text message to their manager who apparently did want my business even though his corporate parent was indifferent. (This, I still can not figure out – usually the corporation thinks bigger picture). He okay’ed them to give me a credit in the amount that I had on the prepaid card. Seemed like a fair deal and I took it.

People often ask me about whether unlocked phones will work in the US and whether or not the carriers perceive these phones as a threat. It can be a hard question to answer.

I see a few challenges:

  • Most consumers in the US expect a free or heavily discounted cell phone. A cell phone purchase today has as much to do with choosing a service provider (e.g., phone, TV, ISP) as making a CE purchase.
  • Most consumers rate quality of coverage and value (e.g., cost of phone, cost of service) as most important when selecting a carrier. Wireless service providers can still lock consumers into contracts with great prices on service even if they don’t subsidize the handset. The carriers know consumers are addicted to ‘free,’ and therefore, may not be worried about unlocked phones as a potential threat.

On the other hand …

  • Direct handset sales to consumers would give the handset manufacturers more control over marketing, features, pricing, etc.
  • If consumers were willing to pay full retail price … they do for cameras, ipods, etc., the handset manufacturers could use services and content as incentives. Nokia sells music today. Nokia has free applications available for download to their phones. (Ever heard of widsets ?)They could cut video and game deals for their portal. (ok, the carrier still owns the pipe in this case and can block, but there is still side-loading) Does Apple subsidize their hardware with content?

It’s an interesting question. There is probably at least some small market in the near term for folks who want unlocked phones – perhaps less so because they are afraid of being locked into a carrier and more so because they want to take a different phone with them depending on what they are doing – jogging, working, at beach, out partying, etc.

This isn’t a full set of arguments – just a reflection based on my own experience of trying to get service.

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