Apple says bye-bye to exclusive iPhone agreements

Ryan Anson/AFP/Getty Images July 11 could not come fast enough for a few million folks dying to get their hands on the new faster, sleeker, cheaper iPhone 3G. (Count me in.) But what I found most interesting about Steve Jobs’s big announcement yesterday is Apple’s abandonment of its iPhone business model so far: exclusive carrier ...

594688_080610_iphone2.jpg
594688_080610_iphone2.jpg

Ryan Anson/AFP/Getty Images

July 11 could not come fast enough for a few million folks dying to get their hands on the new faster, sleeker, cheaper iPhone 3G. (Count me in.) But what I found most interesting about Steve Jobs's big announcement yesterday is Apple's abandonment of its iPhone business model so far: exclusive carrier agreements.

In the six countries where you can officially get an iPhone, Apple has signed deals with mobile carriers (such as AT&T here in the United States) that give Apple a cut of the revenue from the carriers' service plans. But within weeks of the iPhone's launch last year, a massive global gray market in hacked iPhones emerged -- much to Apple's surprise. The company still made money on iPhone handsets, but it was missing out on millions of dollars in revenue it could have gotten from its partners, since more than a million new iPhone users were using hacked phones on different carriers. So, instead of pursuing what was clearly an untenable course, Apple yesterday switched gears, dropping plans for exclusivity agreements in new markets. In other words, they learned from the gray market that their business model simply wasn't the best way to go:

Ryan Anson/AFP/Getty Images

July 11 could not come fast enough for a few million folks dying to get their hands on the new faster, sleeker, cheaper iPhone 3G. (Count me in.) But what I found most interesting about Steve Jobs’s big announcement yesterday is Apple’s abandonment of its iPhone business model so far: exclusive carrier agreements.

In the six countries where you can officially get an iPhone, Apple has signed deals with mobile carriers (such as AT&T here in the United States) that give Apple a cut of the revenue from the carriers’ service plans. But within weeks of the iPhone’s launch last year, a massive global gray market in hacked iPhones emerged — much to Apple’s surprise. The company still made money on iPhone handsets, but it was missing out on millions of dollars in revenue it could have gotten from its partners, since more than a million new iPhone users were using hacked phones on different carriers. So, instead of pursuing what was clearly an untenable course, Apple yesterday switched gears, dropping plans for exclusivity agreements in new markets. In other words, they learned from the gray market that their business model simply wasn’t the best way to go:

We’ve changed our business model, from getting a cut of the future revenues to just a more traditional model,” Mr. Jobs said in an interview on Monday. “That’s enabled us to roll out around the world much faster.”

As for the new business agreement in the States, Apple and AT&T will no longer share revenues as of yesterday. But it still sounds like AT&T will be the exclusive carrier through the end of its multi-year contract, believed to be five years. At the very least, it will be harder to gripe about AT&T’s slow download speeds on the new 3G network.

Carolyn O'Hara is a senior editor at Foreign Policy.

More from Foreign Policy

A Panzerhaubitze 2000 tank howitzer fires during a mission in Ukraine’s Donetsk region.
A Panzerhaubitze 2000 tank howitzer fires during a mission in Ukraine’s Donetsk region.

Lessons for the Next War

Twelve experts weigh in on how to prevent, deter, and—if necessary—fight the next conflict.

An illustration showing a torn Russian flag and Russian President Vladimir Putin.
An illustration showing a torn Russian flag and Russian President Vladimir Putin.

It’s High Time to Prepare for Russia’s Collapse

Not planning for the possibility of disintegration betrays a dangerous lack of imagination.

An unexploded tail section of a cluster bomb is seen in Ukraine.
An unexploded tail section of a cluster bomb is seen in Ukraine.

Turkey Is Sending Cold War-Era Cluster Bombs to Ukraine

The artillery-fired cluster munitions could be lethal to Russian troops—and Ukrainian civilians.

A joint session of Congress meets to count the Electoral College vote from the 2008 presidential election the House Chamber in the U.S. Capitol  January 8, 2009 in Washington.
A joint session of Congress meets to count the Electoral College vote from the 2008 presidential election the House Chamber in the U.S. Capitol January 8, 2009 in Washington.

Congrats, You’re a Member of Congress. Now Listen Up.

Some brief foreign-policy advice for the newest members of the U.S. legislature.