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Your Cash Is No Good at the iPhone Store

By Walaika Haskins MacNewsWorld ECT News Network
Oct 29, 2007 1:00 PM PT

Consumers planning to splurge this holiday season and buy iPhones for the whole family will have to make other plans and they will have to pay for any iPhone purchased with a credit or debit card. Apple and AT&T have tightened restrictions on sales of the popular sought device in an effort to prevent resellers from scooping up the handsets.

Your Cash Is No Good at the iPhone Store

Apple and AT&T replaced the previous limit of five phones per person Thursday and reduced the maximum number to just two phones for each shopper. To further stymie resellers, the company has also instituted a no-cash policy.

"Customer response to the iPhone has been off the charts, and limiting iPhone sales to two per customer helps us ensure that there are enough iPhones for people who are shopping for themselves or buying a gift," Natalie Kerris, an Apple spokesperson, told MacNewsWorld. "We're requiring a credit or debit card for payment to discourage unauthorized resellers."

Hot Property

The two-phone limitation is actually a return to Apple's original sales policy when the iPhone launched at the end of June. With queues of early adopters forming outside Apple and AT&T stores around the country days before they were available, the hardware maker set a strict quota on the number of handsets each buyer was allowed to carry away.

As demand stabilized in the weeks following the release, Apple eased purchasing restrictions bit, bumping the number up to five phones per person. More than 1.4 million iPhones have been sold through Apple and AT&T in the four months since, and the device is expected to generate significant sales during the holidays.

However, Tim Cook, Apple's chief operating officer, told reporters last week that the company estimates that some 250,000 of the devices were purchased with the intent to unlock them from the AT&T network.

If the move is an effort by Apple to deter users from unlocking the iPhone, it is a "strange one," said David Chamberlain, an InStat analyst.

"I have to admit that the number of unlocked phones is probably far greater than I'd first expected," he told MacNewsWorld.

The issue for Apple is not unlocked phones here in the U.S., according to Chamberlain. The problem is that phones purchased in the States are then shipped to Europe, Japan, China and elsewhere due to the high level of demand worldwide. Apple itself has failed to appease that demand because it has not completed deals with carriers and mobile operators in many countries, leaving the hole that some unauthorized resellers have attempted to fill.

"Their bargaining position must be much weaker with the operators now that iPhones are coming into the country and running on those carriers networks already -- without giving a penny to Apple," he explained. "The Apple juggernaut rolled over AT&T, but unless it can stop the bad guys from shipping iPhones out of the U.S., then they're going to be very much weakened, especially in Asia."

Cash Out

Although the plastic-only requirement may be annoying to some, it is in fact legal. Retailers are well within their rights to specify the forms of payment they will or will not accept, according to the U.S. Department of Treasury. There is no federal statute that mandates what type of currency a private business, person or organization must accept. Private businesses can do what they choose unless there is an applicable state law.

The requirement is probably to keep the same person from making a purchase at multiple outlets, Chamberlain noted.

"But I suspect it is a losing battle," he continued. "If your unlocked phone doesn't have to touch the iTunes Web site where it can be relocked or disabled, then it's gone for good. This is becoming a pure hardware play."

As a result, Apple has effectively cut off all potential iTunes revenue from owners of unlocked phones because of the threat to relock them once they hit the site.

Apple has made another huge mistake with the US$399 price cut in the U.S., according to Chamberlain.

"[With] that price cut in the U.S., [Apple] has set $399 as the highest price it can charge anywhere," he stated. "If they want to sell it for $599 in Japan, Japanese buyers will just look to the U.S. and buy them from eBay or through illegal channels.

"Apple could have handled this much smarter," he concluded. "But I think Pandora's box has been opened and I doubt they'll get it closed again."

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