SpectrumTalk

Adam Smith and the Gray Marketing of Cellphones

RCR Wireless News has had two recent articles about gray marketing of cell phone handsets in recent days. The first one points out that Apple claims sales of over 4 million iPhones while AT&T claims only "nearly" 2 million as having been activated. The second article reports that

"AT&T Mobility, the nation’s largest mobile-phone carrier, alleges in a suit filed in Texas federal court that its GoPhones are being purchased in bulk and, after being unlocked, resold here and abroad -- including Latin America, Asia and the Middle East -- at a premium in violation of trademark law and other statutes."

My interpretation of these event is confirmation that Adam Smith was correct: market place forces work to restore equilibrium in supply and demand. If cellphone carriers continue to sell handsets at less than cost or make them available only with odd restrictive conditions, then global marketplace forces will try to restore equilibrium. Challenging hackers with annoying restriction in software will only get them more interested in the same issue.

Microsoft got in a similar mess a few years ago when it sold early Xbox game systems at less than the price of PCs even though they consisted of basically the same hardware. MS was surprised when users started modding them to function as a very cost-effective PC.

I hope the Federal government has better things to do with its time than to defend large corporations that market products inviting diversion to the gray market. The best defense is to unbundle products and services and sell them each at a fair price.
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UPDATE 2/18/08


Ad for iPhone on wall in Shanghai


The NY Times seems to have confirmed the location of the millions of missing iPhones: China and other countries where Apple isn't selling them.

"The answer now seems clear. For months, tourists, small entrepreneurs and smugglers of electronic goods have been buying iPhones in the United States and then shipping them overseas.

There the phones’ digital locks are broken so they can work on local cellular networks, and they are outfitted with localized software, essentially undermining Apple’s effort to introduce the phone with exclusive partnership deals, similar to its primary partnership agreement with AT&T in the United States."

So it is reassuring that the American economy has found another product to export to China other than scrap steel and paper for recycling: made in China but "designed by Apple in California" iPhones!