Apple's Patent Filing Points to Greater Carrier Freedom for Consumers


Feeling shackled to your cellular plan? Ready to say so-long to roaming charges? Apple (AAPL) is getting ready to welcome frustrated phone users with open arms.

Late last week, the company filed a patent application for its mobile devices -- specifically a method for storing multiple carrier configurations inside the phone to help phone users identify their primary wireless carrier when in range and then automatically kick in a secondary wireless carrier only when that secondary carrier is available.

For Apple and its popular iPhone, a more flexible carrier configuration system would provide a number of benefits:

1. Savings: For one, the company would cut costs on configuring and shipping multiple versions of the same mobile device based on a particular carrier's specifications.

2. World domination: With more carrier options built in, Apple will have an easier time entering the prepaid cellular phone market. In emerging markets where prepaid phones are in demand, customers are able to swap out their prepaid SIM card but continue to use the same device. Apple would likely enter only those emerging markets in regions where customers could afford high-end phones, says Ashok Kumar, an analyst with Rodman & Renshaw.

Apple's Big Bite

But what would Apple's biggest benefit be?

"Once they disconnect the carriers from configuring the phone, Apple can take over the billing," Kumar says. "Once they control the billing, Apple can increase its share of the consumer's wallet by selling them software, services, and hardware."

While Apple may benefit from a larger slice of consumers' wallets, international and business travelers are the ones who would most likely benefit if Apple puts its patent into action by avoiding carriers' astronomical roaming fees, say analysts.

According to the patent application:

"A user of the mobile wireless communications device can prefer to use the same mobile wireless communication device at different times with different wireless communication service providers. For example, the user can subscribe to a primary wireless communication service provider at home and to a secondary wireless communication service provider when traveling abroad."

So-long, Roaming Charges; Hello, Pricey Phone

While consumers and business travelers may save on roaming charges, they could also end up paying substantially more for an iPhone if carriers pull back on their sizable subsidies.

A report in AppleInsider noted that some European carriers last year voiced their opposition to Apple installing an open SIM card into the phones, thereby circumventing the carriers during the activation process. According to the report, the carriers went as far as threatening to nix their subsidies.

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Here's a point of reference showing how much the carriers kick in: A 16GB iPhone with a two-year carrier contract from AT&T (T), or Verizon Wireless, costs $199. But anyone looking to snap up the same iPhone without a two-year carrier contract has to pay $649. This more expensive "unlocked" phone does not come with a carrier micro-SIM card, nor a carrier service contract, but instead requires users to activate a SIM card from any carrier of their choosing. That affords some flexibility but not as much as having multiple carrier configurations already baked into the phone.

In order for Apple to eventually pull this type of patent off, analysts say it only takes one major carrier to go along with the idea. Then, according to Kumar, the rest of the carriers will give in.

Competitors Waiting for the Apple to Fall

Apple's competitors, however, have a tighter relationship with the carriers, says Scott Sutherland, a Wedbush Securities analyst. For example, each carrier offers its own logo and version of its customized software and services on the manufacturers' phones. Research In Motion's (RIMM) BlackBerry Bold, for example, features AT&T's logo at the bottom of the keyboard. But the only AT&T reference on the iPhone 4 is seen on the screen once the phone is activated.

Still, despite competitors having a tighter relationship with carriers, what they don't have is the iPhone maker's market share and popularity. Kumar says he wouldn't be surprised to see carriers offer cash rebates to consumers who select their carrier service, even if Apple is the one that handles the activation and customer relationship.

If Apple adopts a similar "unlocked" iPhone pricing strategy with a multi-carrier configured iPhone, consumers will need to calculate how long it would take to make up a $450 price tag gap with saved roaming charges and whether the savings could be realized within a two-year period. If neither seems likely, consumers may be better off without a jack-of-all-trades, multi-carrier-configured iPhone.

Motley Fool contributor Dawn Kawamoto does not own shares in any of the companies mentioned. The Motley Fool owns shares of Apple.

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