China's iPhone Black Market

Shaon published 18 Feb 2008, 23:54 in apple - 241 views

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Today, the New York Times ran a story on the iPhone black market, which describes the vast trade in unlocked iPhones and cheap iPhone knockoffs in China. The article tells of copycat "iClones" in Shanghai that can be bought for "as little as $125" and of entrepreneurs smuggling foreign iPhones into China on passenger planes. According to the Times, black market merchants pay flight attendants and tour groups commissions to bring in iPhones from abroad and then install software that "unlocks" the phone for use on unauthorized local networks. The iPhone has yet to be released in China because negotiations between Apple and China Mobile have reached a standstill, so the unlocked iPhones are proving to be extremely popular there. The questions at this point, are whether or not the Chinese black market will have a major impact on Apple's bottom line and whether or not it will spread beyond Asia. In other words, when can I get my hands on a fake hundred dollar iClone?

We've already seen unlocked iPhones
on sale in New York's Chinatown, which means that the Chinese iPhone bootleggers have definitely set up shop in the states, but will their wares catch on? The Times reports that the unlocked phones cost from $450-$600 in Shanghai. This puts them on par with the $600 versions on sale in New York, in spite of all the costs and dangers associated with importing them to China. Since, the standard Apple model sells for $400 and can only be used on specific wireless carriers, black market unlocked iPhones will probably remain a popular and economical option for many cell phone owners. The Times talked with an Apple spokesperson who aid that, although it is hard to come up with a reliable estimate, the number of unlocked iPhones being sold is "significant." Since they make money from the initial sale of the phone, the success of unlocked phones shouldn't do too much damage to Apple. Still, the exclusive contracts with carriers that are being circumvented by the unlocked iPhones provide Apple with yearly revenue. For example, the Times cites analysts who estimate that AT&T's deal with Apple in the states gets Steve Jobs and his cronies $120 each year per customer. It'd be easy to imagine Apple crippling the unlocked phones with software updates to avoid losing that kind of cash.