Some iPhone owners crave freedom to unlock from AT&T

Photo: AT&T Relents on iPhone Pricing for Upgraders: AT&T relents, giving some current iPhone owners a price break on the new model

Who really controls your Apple iPhone? If you think you do, think again. AT&T, the U.S. distributor, requires iPhone owners to use its wireless networks exclusively. Those who "jailbreak" their devices and use another carrier void the warranty.

Even if you pay full retail ($500 to $700), you still have to agree to use AT&T's network, or it won't sell you the device. Subsidized iPhones start at $199 but require a two-year service agreement.

As for trying to use your state-of-the-art device to place calls over the Internet, good luck. The iPhone's Skype application works on Wi-Fi but not on AT&T's 3G network. Other iPhone apps work on both. AT&T says the block is justified, because Skype is a direct competitor.

Customers have two choices: They can suck it up and stay with AT&T, or storm the wall. So far, more than 300,000 iPhone owners are now using T-Mobile's network and data plans, according to two people with direct knowledge of the situation. Those scaling the wall include owners of the new iPhone 3G S, which hit retail shelves in mid-June. The sources declined to be named because they aren't authorized to talk publicly about iPhone customers.

The lesson?

"Consumers are craving greater control," says Joel Kelsey, a public policy analyst with Consumers Union. So much, he says, that "they're willing to risk turning their $300-plus investment into a brick."

The problem for consumers: Carrier obsession with customer control is growing. Profit is the driver. As the USA reaches wireless saturation — meaning everybody who wants a cellphone already has one — carriers have to hustle hard to add customers and grow revenue. The USA (population about 300 million) currently has around 270 million cellphone subscribers.

The real pot of gold is mobile data, widely regarded as the next frontier of wireless. That's why carriers are so hot to get their hands on the latest, coolest devices — so they can sell consumers pricey data plans.

To land exclusives, carriers typically pay handset makers a certain amount of money, or subsidy, per device. AT&T, for example, pays Apple more than $300. That's why AT&T's iPhone policies are so tough: It's trying to lock down customers long enough to earn back that money.

But the crush of iPhone jailbreaks is just the beginning of what could become a full-tilt consumer revolt, predicts Sameer Mithal, an independent wireless consultant.

"There's a consumer movement to controlling the service," as well as wireless devices, Mithal says. U.S. "carriers will be very reluctant to make this change," he adds. "But they're not going to have a choice."

Shifts in U.S. lifestyle are a big factor, he says. Currently, about 18% of U.S. households are wireless-only, and the trend is gaining, thanks to souped-up devices such as the iPhone.

Exclusive deals under scrutiny

The iPhone is available on a non-exclusive basis in many countries, including France, Belgium, Italy and Australia. In those markets, consumers can buy the device and use it on any network.

Outside the USA, wireless devices typically aren't subsidized — consumers pay full retail. While devices are more expensive, buyers don't have to lock into long-term contracts. Carrier-imposed bans on applications, such as AT&T's Skype block on the iPhone, are practically unheard of.

Once U.S. consumers get a taste of true wireless freedom, Mithal thinks they'll like it — a lot: "More choice is always better" than less.

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