Unlocked iPhones: What are they good for?

Since the launch of the very first iPhone, customers in the U.S. could only get their hands on the device if they were willing to ink a two-year contract with a cell phone carrier. iPhone users in other parts of the world had it different, though—they could buy an iPhone that wasn’t locked into any one carrier, provided they were willing to pay up for the privilege.

That changed on Tuesday, when Apple announced it would sell an unlocked version of the iPhone 4 in the U.S. You’re responsible for procuring your own micro-SIM—that’s the card that identifies you to mobile networks and lets you make calls—and you’ve got to line up a cellular contract. But other than that—and a modest payment of $649 or $749 to buy the device—an unlocked iPhone 4 capable of connecting to any GSM-based network is all yours.

The question is, why pay up for an unlocked phone? We can outline why this may be the right decision for you—as well as a few reasons you might want to stick with the lower cost model.

Why you would want an unlocked iPhone

* International Travel: The iPhone does a lot of things seamless, but crossing over borders isn’t one of them. Travel with your iPhone overseas and you can rack up some pretty stiff data roaming charges from your carrier back home.

If you have an unlocked iPhone, though, globetrotting becomes a lot simpler. Since much of the world uses the same GSM technology as the unlocked iPhone, you can take it with you on your travels. All you need to do is swap in a local carrier’s micro-SIM, and you can use your iPhone just like you would back in the states. That’s an attractive proposition for anyone who makes frequent trips abroad for business or pleasure.

* No Commitment: If you choose to use your unlocked iPhone with AT&T, you can pay for your service on a month to month basis. Contract lock-in is only required when you’re buying a carrier-locked phone. So if a two-year commitment give you the willies, this may be your way out.

* It’s All About the Coverage: We admit that this point has become less compelling ever since the Verizon iPhone 4 arrived earlier this year, and gave U.S. iPhone users a choice of carriers. Still, if you live in a part of the country the neither AT&T nor Verizon serve particularly well, you could pony up for an unlocked iPhone and try your luck with T-Mobile’s network. (You couldn’t use your unlocked phone on Sprint’s CDMA-based network, incidentally—only GSM-compatible iPhones are available unlocked.)

Why you would pass on an unlocked iPhone

* Freedom Isn’t Free: We mentioned the price tag of an unlocked iPhone—$649 for the 16GB model and $749 for the 32GB version. That’s quite a markup from the $199 and $299 you’d pay for the 16GB and 32GB iPhones with a two-year contract. And while the lower initial cost of the subsidized iPhone doesn’t take into account what you’re committing to pay AT&T and Verizon over the next 24 months, the price of an unlocked iPhone will still be too steep for some users.

And if you’re hoping that you can get cheaper AT&T rates by purchasing an unlocked phone and, say, forgoing a data plan, we have bad news. AT&T spokesman Mark Siegel told Macworld that any iPhone on its network—including an unlocked iPhone—is required to use an iPhone data plan, the cheapest of which starts at $15 per month. Siegel said that when AT&T detects an iPhone without a data plan, they’ll ask you to pony up for one, or terminate your service.

* Compromised Service: The iPhone 4 connects via 3G for your voice and data needs (at least when there’s no Wi-Fi network available, in the case of data). But that faster connectivity won’t be available to you if you were to, say, latch on with T-Mobile’s network. As jailbreakers who unlock their iPhones against Apple’s wishes already know, T-Mobile uses a different 3G frequency than AT&T does; consequently, an unlocked iPhone would only be able to connect to the slower EDGE network for data. On the bright side, voice features should work fine, though since Visual Voicemail is a carrier-supported feature, you wouldn’t have access to that, either.

The final verdict

Like many decisions involving iOS devices—AT&T or Verizon for your service provider? 3G or Wi-Fi-only for your iPad?—whether or not to buy an unlocked iPhone comes down to your preferences and how you plan on using the device. For users who can’t stand the thought of being bound to one carrier for two years, $649 to $749 will seem like a small price to pay. Travelers who hop from one end of the globe to another—particularly on business—might also find the flexibility of an unlocked iPhone to be worth the price. Most other people will prefer the low initial cost of an iPhone to a month-to-month agreement with a carrier.

Whatever you decide, you’ll have to do it at the time of initial purchase. You can’t unlock an iPhone after you’ve already agreed to a two-year contract with a carrier—buying your phone unlocked at the start is the only option you have.

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