Wireless, but Leashed

The news that Apple was ending its exclusive relationship with AT&T and would begin selling the iPhone 4 on Verizon’s network in the United States was not a surprise, but the excitement was palpable nonetheless.

“Freedom!” bellowed Jon Stewart on “The Daily Show,” in a segment in which people described their relationship to AT&T as that of slaves to their masters, subjects to their tyrants.

Given the dissatisfaction with AT&T, it is easy to look at other parts of the world and wonder why this didn’t happen sooner. After all, the iPhone is available on multiple carriers in many European markets. France even has a law that would have made AT&T’s exclusive agreement with Apple illegal. Almost half of mobile phone customers in the largest European countries do not have contracts with wireless carriers, and can switch phones from one network to another with ease.

The continent’s system is looser in part because Europe settled on a single technological standard for wireless carriers 20 years ago. Countries there wanted to ensure that their citizens’ phones would work as they traveled throughout the Continent. No such agreement was reached in the United States, which had recently deregulated its telephone industry, and carriers built their networks on separate technologies.

“I’d call it the culture of competition,” said Alex Hills, a professor of engineering and public policy at Carnegie Mellon, explaining why a single standard was not set in the United States. “There was interest in allowing the standards to compete with one another, and let the market decide who would win.”

That’s not to say that American policymakers have been hands off; cellphone users have been gaining more freedom. In 2003, wireless customers were given the right to move their phone number from one network to another, for instance. And the federal government ruled in July that users could legally bypass Apple’s software restrictions for the iPhone, a process known as jailbreaking. This decision reduced Apple’s control, but its iPhones were still not able to connect to other 3G wireless networks.

“In a European country, for a government to say you cannot have exclusive relationships with phone manufacturers, that’s a very simple thing,” said Charles Golvin, an analyst with Forrester Research. “However, in the U.S. it’s a more complex technical problem.”

Such technical barriers, of course, are not insurmountable. When Apple decided to work with Verizon, it built a new version of the iPhone to work on the Verizon network. But the new device comes with some tradeoffs — for instance, the phone cannot handle a phone call at the same time it is being used to access the Internet.

Phone manufacturers and wireless carriers both have incentives to restrict the choices available to consumers, through the sorts of agreements that Apple has had with AT&T and now Verizon. For carriers, being able to sell desirable phones allows them to lure consumers to their networks, and they are willing to subsidize the cost of the phone significantly in exchange. This gives phone manufacturers a reliable way to distribute their phones, and brings the price of increasingly sophisticated devices down to a level that seems reasonable to the mainstream market.

This tradeoff benefits consumers, as well. By agreeing to bind themselves to AT&T for two years, iPhone owners paid for only about a third of their phones; AT&T put up the rest. Europeans may be able to leave their carriers the minute they think another company can do better, but they pay significantly more upfront for that added choice.

This doesn’t necessarily make them happier than the Americans raging against AT&T. In November, ComScore, a marketing research firm, asked mobile phone users to rank how satisfied they were with their carriers, on a scale of 1 to 10, with 10 being most satisfied. Only 11 percent of Americans gave their carriers a five or below. By contrast, 16 percent of Europeans ranked their carriers with a five or lower.

The only question, then, is why don’t they switch?