User:Dsayles08/iPhone

When Apple initially released the iPhone on June 29, 2007, it was sold exclusively with AT&T (formerly Cingular) contracts in the United States. The tying arrangement between Apple's smartphone and a specific service provider has caused recent controversy. This has brought the concepts of jailbreaking and bricking into the mainstream debate over the future of smartphone technology.

Concepts

Apple

Apple is a multinational corporation that designs, manufactures and markets a range of personal computers, mobile communication and media devices, and portable digital music players, and sells a variety of related software, services, peripherals, networking solutions, and third-party digital content and applications. Some of the company’s most well-known products include Macintosh (“Mac”) computers, the iPad, iPod, and of course, the iPhone. The Company sells its products worldwide through its retail stores, online stores, and direct sales force and third-party cellular network carriers, wholesalers, retailers, and value added resellers.

iPhone

When Apple's iPhone first hit stores on June 29, 2007 it was an epochal media event. Apple was poised to make its entry into the market with a new mobile phone that promised groundbreaking technological capabilities. It took Apple a mere seventy-four days to sell one million handsets. The iPhone's user interface is built around the device's multi-touch screen. The iPhone has third-party as well as Apple applications that are available from its App Store. There are four generations of iPhone models, and they were accompanied by four major releases of iOS.

AT&T

AT&T is the largest provider of fixed telephone service in the United States. AT&T Mobility, a wholly owned subsidiary of the company, is the wireless telecommunications provider for over 97 million subscribers in the US and its territories.

Tying

Tying is an economic practice considered by many to be anti-competitive. It is defined as an agreement by an entity to sell a product (the 'tying' item) only on the condition that the consumer also purchase a second product (the 'tied' item). The tying of Apple products, specifically its smartphone to certain service providers, is an example of commercial tying that has caused recent controversy.

Jailbreaking

Jail breaking is a common term used to describe a situation in which a user tries to tamper with the operating system of an iPhone (or other device) in an attempt to unlock it. If done successfully, this would allow the hacker to run any application on the phone they choose, including applications not authorized by the maker of the device. In contrast, an unlocked cell phone offers considerably more freedom than a locked phone: it is available for use on any cellular network with which the customers has an account. If a consumer has an unlocked iPhone, he can use the iPhone on an account with T-Mobile or any other carrier using GSM technology. Generally, phone owners replace the Subscriber Identity Module (SIM card) and multiple accounts, an owner can use the same handset on multiple networks. Alternatively, a user could close his account with one network, purchase a new SIM card, and switch to another network. The desire to achieve this level of portability and freedom prompted interested groups and individuals to enter the race to unlock the iPhone, a race that was won less than two months after the iPhone's release.

Bricking

The concept of bricking refers to a situation in which a user unsuccessfully attempts to jailbreak their smartphone, rendering the device permanently inoperable. It becomes about as useful as a brick, hence the terminology.

History

After a year and a half of secret meetings, Steve Jobs had finally negotiated terms with the wireless division of the telecomm giant AT&T (Cingular at the time) to be the iPhone's carrier. In return for five years of exclusivity, roughly 10 percent of iPhone sales in AT&T stores, and a thin slice of Apple's iTunes revenue, AT&T had granted Jobs unprecedented power. He had cajoled AT&T into spending millions of dollars and thousands of man-hours to create a new feature, so-called visual voice-mail, and to reinvent the time-consuming in-store sign-up process. He'd also wrangled a unique revenue-sharing arrangement, garnering roughly $10 a month from every iPhone customer's AT&T bill.

On top of all that, Apple retained complete control over the design, manufacturing, and marketing of the iPhone. Jobs had done the unthinkable: squeezed a good deal out of one of the largest players in the entrenched wireless industry. Now that AT&T had complete control over the iPhone, consumers were unable to use any other cell phone provider on the iPhone's iOS system.

Since many people were trying to jailbreak their iPhone to avoid the At&T network, AT&T decided to charge consumers if they were to leave the network. This caused complaints among many consumers, as they were forced to pay an additional early termination fee of $175 if they wanted to safely unlock the device for use on a different carrier. Other companies such as Google complained that tying encourages a more closed access based wireless service.

Court Cases

Many questioned the legality of Apple's arrangement, and in October 2007 two class-action lawsuits were filed against Apple, one in federal court and the other in state court. The suits claim that Apple's exclusive agreement with AT&T violates California antitrust law. The suit was filed by the Law Office of Damian R. Fernandez on behalf of California resident Timothy P. Smith, and ultimately sought to have an injunction issued against Apple to prevent it from selling iPhones with any kind of software lock, in addition to $200 million in monetary damages. The plaintiffs of the Smith v. Apple Inc. case claim that Apple failed to disclose their five year agreement with AT&T to purchasers when they bought their iPhones with a two year contract, citing the Sherman Act's prohibition on monopolization. The court has not yet rendered a decision in the case.

A second case was filed in the United States District Court for the Northern District of California in 2007. The plaintiff, Paul Holman, filed a complaint against Apple, Inc. and AT&T Mobility, LLC. Holman alleges that he is unable to switch carriers or change SIM cards without losing improvements to his iPhones which he is entitled to. The plaintiff similarly references the Sherman Act as being violated by the defendants. On July 8, 2010 the case was affirmed for class certification. On December 9, 2010 the court ordered a stay on the case, awaiting the Supreme Court's decision in AT&T v. Concepcion. This secondary case disputed whether a clause in AT&T's contract that limited complaints to arbitration, met the stat's basic standards of fairness.. On April 27, 2011 the Supreme Court ruled that AT&T did indeed meet the stat's standards of fairness.

Implications

In its 2010 Annual Report, Apple told its investors that "the Company has signed multi-year agreements with various cellular network carriers authorizing them to distribute and provide cellular network services for iPhones. These agreements are generally not exclusive with a specific carrier, except in the U.S." The report also briefly mentioned the ongoing Apple and AT&T antitrust litigation, providing the status of the situation as of the report's publication on October 27, 2010. For consumers and the industry alike, the outcomes of these court cases will help to shape the future of smartphone and service provider relationships. In a recent case settled by Sprint, the company agreed to provide unlocking codes to customers provided that a few conditions were met. This settlement was hailed by the media as an indication of increased flexibility for consumers to switch between wireless carrier switching. Other companies, such as Verizon, have made similar settlements, all seeming to indicate a trend toward network openness and unlocked devices.

As Apple has found itself facing legal troubles, Google's competing Android platform has steadily grown. As of early October 2010, Nielsen reported that Android held 32% of the smartphone market, while Apple and BlackBerry both held about 25% each. The rise in Android popularity has put pressure on Apple to make the iPhone available on other U.S. service providers besides AT&T, and was likely a factor behind the new iPhone/Verizon contract.

If the trend toward openness persists, Apple may also find itself facing ever-increasing pressure to use open platforms. Many predict that the wireless market will one day possess the flexibility of the Internet, where applications will run on any device and over any network. If this becomes the case, Apple may have no choice but to unlock the iPhone if it wants to continue to compete.