Are Unlocked Phones Worth It?

Apple’s unlocked iPhone has some people considering unlocked phones in general as a way to bypass contracts, but some customers may find it just isn’t worth it.

The Cupertino, Calif.-based company’s announcement yesterday that it would begin selling unlocked versions of its iPhone 4 sparked discussions on the benefits and drawbacks of unlocked devices in general, a relative rarity in the U.S. market. The unlocked devices allow people to use a cell phone without signing a contract with a carrier, letting them jump between carriers at their leisure.

Unlocked phones in general do benefit cell phone users who have trouble sticking with one device over the duration of a contract, since they give users free reign to swap phones in and out without voiding contracts or early termination fees. A person can purchase an unlocked phone either through a manufacturer or through third-parties like Craigslist or EBay, and once they’ve had their fix, they can re-sell the device for a new one.

An unlocked phone also benefit for U.S. customers who travel abroad frequently. For example, if a customer travels to the U.K., the contracted carrier may offer a discounted fee, which would lower the rate to $1 per-minute rather than $1.40. If a customer uses 100 international minutes during a stay, that would total $105 for calls made abroad.

If the person had an unlocked device and purchased a pay as you go plan from U.K. carrier Orange, it could cost about $16.

For the person who travels abroad and needs to be connected stateside, the unlocked phone might just pay for itself after a handful of trips. Avoiding international charges which can reach over $100 a month can be side-stepped thanks to pay as you go plans on foreign carriers.

However, for many other consumers, unlocked phones may prove to be more difficult, since the U.S. mobile landscape is dotted with different protocols and standards that can vary by carrier, making theoretically flexible devices more difficult to port to other networks.

For example, U.S. customers who purchase the contract-free iPhones will find few options in terms of carriers who still use SIM card, which the unlocked iPhone requires. Only AT&T and T-Mobile still use SIMs, but AT&T already offers the iPhone under contract for a lot less money, leaving little reason for consumers to purchase the unlocked device.

Though T-Mobile allows customers to use the unlocked iPhone on its network, it does not offer 3G coverage, reducing the device’s speed to the bygone days of 2007. Those speeds are on par with 2G networks, which are much slower than today’s 3G. Finally, only two networks allow unlocked phones on their networks, AT&T and T-Mobile. And if AT&T’s proposed merger with T-Mobile for $39 billion is approved, customers may be left with only one option for their locked iPhone.

Unlocked phones cost significantly more than contract-bound locked phones because the carrier does not subsidise part of the cost for unlocked phones. At first glance, it may seem like a phone free of a contract, even if it is a couple hundred dollars more because it isn’t subsidized, might be a better deal, but that may not always be the case.

In the long run, as well, some contracts do benefit consumers. Consumers would spend over $2,200 a year to use an unlocked 16-gigabyte iPhone 4 on AT&T’s cheapest wireless plan, as opposed to paying $1,750 for the same device on a contracted plan.

Apple’s decision to offer the unlocked iPhone 4 highlights the pros and cons of unlocked phones in general. It’s a smart, cheaper alternative in the long run for cell phone users who often leave the country to travel or for business, but for people who seldom travel and would use the unlocked device stateside, it’s an expensive option with few positives, making contracts a no-brainer.

Apple is selling its 16-gigabyte unlocked iPhone for $650 and its 32-gigabyte model for $750.

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