A quarter of iPhones are unlocked

 

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By Reuters

Posted on 29 Jan 2008 at 08:23

More than a quarter of Apple iPhone buyers are using the handset on unofficial networks, according to analysts.

Bernstein Research analyst Toni Sacconaghi claims analysis of sales numbers from Apple and AT&T (Apple's preferred US network) reveals about 1.45 million phones were "missing in action" at the end of 2007.

About 480,000 of those are believed to be held by AT&T as inventory, leaving another 1 million phones, or 27% of the total, unlocked for use on other networks. Sacconaghi claims the number of unlocked handsets is "stunning" and will put pressure on the company's business model.

Apple executives said last week the number of unlocked phones was "significant" but declined to give an estimate. Most analysts had estimated the proportion of unlocked phones at under 20%.

The higher number is worrying for Apple because the company receives a cut of iPhone service fees, revenue that carries a high gross margin and has fuelled optimism over its earnings potential.

For example, Sacconaghi says, if Apple hit its sales goal of 10 million iPhones by the end of 2008, but 30% of those don't result in any carrier payments, its revenue and profit would be $500 million and 37 cents per share lower than expected.

If Apple cracks down on unlocked phones it could preserve its high margins but miss its sales target, whereas allowing them could erode profitability and make it tough to sign more carriers to similar revenue-sharing deals.

"Besides the financial implications, we believe the prevalence of unlocked iPhones presents a significant strategic dilemma to Apple," Sacconaghi claims.

Spokespersons for Apple and AT&T declined to comment.

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