Unlocked iPhone 5: Worth The Cost?

Apple iPhone 5 Teardown: Visual Tour

Apple this week made the iPhone 5 available for sale unlocked and without a contract. It can be purchased from Apple.com for $649, $749, or $849 for the 16-GB, 32-GB and 64-GB versions, respectively. It comes in the same black and white color options as the on-contract subsidized models.

The subsidized iPhone 5 can be purchased for as little as $199 from AT&T, Sprint and Verizon Wireless, and even less if you're willing to sign a contract with a small regional carrier. If you can buy the iPhone 5 for $199 from a carrier, why choose to pay more than three times that cost for the unlocked version?

In a word, freedom. Here's what type of freedom $649 buys you.

First, it is important to remember that the iPhone 5 comes in several different models that are optimized for the different wireless network operators. The unlocked model works on GSM networks, not CDMA networks. That means you won't be able to use the unlocked iPhone on either Sprint or Verizon's networks. Instead, it will be limited to GSM networks. In the U.S., that means AT&T or T-Mobile USA. (You'll be able to get LTE service from AT&T, but only 3G service from T-Mobile in a handful of markets.)

The biggest benefit of having an unlocked device is that you'll be able to use the iPhone 5 on the networks of foreign carriers when you travel abroad. The on-contract version of the iPhone will roam on those networks, too, but you'll have to pay roaming fees to your U.S.-based carrier (think Bill Shock). Unlocked devices can be used with local SIM cards at a much lower cost.

The trade-off is that you lose *your* phone number, which is replaced with a local phone number. This means your coworkers or family will get dinged for long-distance charges if they call the foreign cell number temporarily assigned to your unlocked iPhone 5.

The second biggest benefit is that you won't be beholden to a pricey contract. Remember, the $199 iPhone may seem like the best deal, but it chains you to a two-year contract with the wireless network operator of your choice. Most post-paid carriers charge a minimum of $70 per month for voice, messaging and data packages. Multiply that by 24 months and you're looking at about $1,700 in carrier fees.

Living contract free means you can use a month-to-month service that costs less. For example, T-Mobile USA offers a prepaid plan that includes unlimited 3G/4G data, unlimited messaging and 100 voice minutes for $30 per month. Some quick math tells us that T-Mobile's two-year prepaid plan costs $720.

No contracts also afford you a greater degree of flexibility, especially if big things change in your life (income, employment, location, etc.).

There's one really important factor consider with the iPhone 5 in particular, however. Verizon Wireless's version of the iPhone 5 already comes with an unlocked SIM card tray (per FCC regulations). That means you can take a Verizon-branded iPhone 5 from the U.S. across the pond to the U.K., buy a local SIM card from a U.K. carrier and use the device at a lower cost on that foreign network (it includes the necessary radios to talk to the GSM networks in foreign countries).

So, if you want to live contract free, and don't mind coughing up at least $649 to do so, the iPhone 5 isn't a bad choice.

For my money, the unlocked and contract-free $349 Nexus 4 a better choice.