This is simply unbelievable (NY Times)

AT&T is paying millions to be the exclusive United States provider of Apple’s much-hyped and glowingly reviewed gadget, the iPhone.

It took 17-year-old George Hotz two months of work to undermine AT&T’s investment.

Mr. Hotz, a resident of Glen Rock, N.J., published detailed instructions online this week that he says will let iPhone owners abandon AT&T’s service and use their phones on some competing cellular networks.

That is not so unbelievable. People will do all sorts of things to tech. What is so unbelievable is that someone else would actually bid $50,100 for an unlocked iPhone. Come on! It is a 4gb one. You have 3 choices of carrier: At&T, Suncom, and T-Mobile, at least here in the USA. This generally proves my point that there are too many insane people out there.

Mr. Hotz says it took him about 500 hours to unlock two iPhone units. He put one of them up for sale on eBay, and by late yesterday, bids on the phone had reached many thousands of dollars. An unmodified iPhone sells for $499 at an Apple store.

500 hours? Needs a girlfriend. Of course, to give him his due respect, if someone actually pays that $50k+, that works out to over $100 an hour. So, just for reference, I am not referring to him as an iMoron, just the person that buys that unlocked iPhone.

Moving on

Carriers like Verizon, AT&T and Sprint seek to keep their customers in two ways. They force them to sign multiyear contracts, which are expensive to break. And the carriers put complex technological locks on phones to ensure that they run only on a given carrier’s wireless network. Without the locks, the phones could be used on rival networks that use the same underlying technology.

First, it is not that simple. If you buy a phone from either of those three carriers listed, it will not work on either of the others! For GSM, you could use it on Suncom, AT&T, or T-Mobile, however, there are lots of settings internally that are carrier specific. Sprints’ phones won’t really work on any other carriers network. Alltel and Verizon are pretty much proprietary tech, unless you want to go pure analog.

Second, no one is forcing anyone to sign a multiyear contract for the phones. People can choose to purchase at cost or retail, depending on carrier. What you are doing when signing a contract is getting it below what the carrier pays for it. Carriers do not make money on selling phones; in fact, they lose money. Every business who sells something has a "cost of aquisition," but most do not usually think of it. Consider, how much money does Old Navy spend to get you to come in and buy that pair of cargo pants? Factored in is the cost of the stores, the cost to make the product, advertising, paying employees, and many other things. With wireless, the aquisition cost averages about $250 or higher. All the costs of running the business are included, including the discount on the device.

The discounts stem from back in the early 90’s, because people did not want to pay hundreds, even thousands, of dollars for a phone. Would you pay about $150-$300 for that phone that is free today if you did not have to get a contract? If all the carriers do away with contracts, you can pretty much expect to pay anywhere from $150-$300 above what you pay today, because they will not be sold at cost, but at a profit, just like when you buy a pair of cargo pants from Old Navy. Most people aren’t. They say the market drives business. This is how the market is dictatating wireless carriers operate: discount and contract.

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