Will iPhone Save Handset Business?

Apple, it is rumored has signed a deal that will allow the Cupertino-based computer company to source 12 million iPod-based phones from a Taiwanese electronics manufacturer. In itself, the news is hardly a surprise for the iPhone has been subject of rampant speculation.

What is surprising the speculation that Apple will sell these phones unlocked, allowing consumers to pop in their SIM cards and use it as a phone. In the US, that would mean getting a SIM card from either the Cingular or T-Mobile. If this is indeed true, and it is not clear if it is so, then Apple will be lending a helping hand to the mobile phone makers.

You can buy unlocked phones in Europe, Asia and on the Internet. But in the US, the carriers in exchange of a long-term contract subsidize most of the handsets, typically between one to two years.

Since they are the big buyers of handsets, the US mobile phone providers have an unnatural control over the market, and thus giving them the ability to dictate what features or models come to market. Many of the major handset makers roll over and play The Pooch, as a result.

Nokia for example doesn’t sell the E61 smart phone in the US, and instead sells a striped down E62 (no WiFi) via Cingular. LG Chocolate (GSM) version is nowhere to be found, but you can get it from Verizon. It is a source of frustration for many handset makers, since they would like to sell their latest phones at premium prices.

The introduction of the unlocked iPhone will do two things – it would basically get US buyers savvy to the idea of buying full priced unlocked phones. Secondly, it is going to cause a behavior change – of buying phones instead of freebies.

It won’t be a mass-market phenomenon in the early stages, but eventually (as shown by iPod Nano and iPod Shuffle), Apple will bring the iPhone prices down to a mass-market price point.

If iPhone causes this behavior change, then, it is good news for rest of the handset industry. Nokia is currently selling three million N Series phones a month, a number that could easily go up if the company could sell its entire range of products at full price. So if you are Nokia or Samsung, it is time to secretly root for the success of iPhone.