iPhone unlocking explodes despite Apple's countermeasures

There's no doubt that Apple has taken iPhone unlocking very seriously in the first six months of its life on the planet. Even so, it appears despite significant roadblocks, the unlockers are winning.

Each of the three times Apple and AT&T have reported their iPhone numbers since July, there has been a gap between the number of iPhones sold by Apple and the number of iPhones activated for AT&T's network. During the first weekend of iPhone sales, the gap was 124,000 units. At the end of the third quarter of the calendar year, it had grown to 300,000 iPhones. And last week, Apple and AT&T revealed that gap had increased five times over in the fourth quarter, to 1.7 million units.

There's one easy explanation this time around for part of the gap: The fourth quarter marked the first time the iPhone was available through other carriers, namely Europe's O2, Orange, and T-Mobile. Still, that accounts for only 350,000 iPhones, according to various estimates, leaving 1.35 million missing iPhones to explain.

Some analysts think around 1 million of those iPhones have been purchased with the intention of unlocking them to run on other cell networks. If those numbers are true, that means iPhone unlocking exploded in the fourth quarter despite two steps taken by Apple to reduce the number of iPhones bought with unlocking in mind.

Last week Toni Sacconaghi of Sanford C. Bernstein thought a demand issue was to blame, believing that unlocking couldn't be much more widespread than Apple Chief Operating Officer Tim Cook had estimated back in October, somewhere around 20 percent of all iPhones sold. That would mean AT&T stores were starting to pile up an inventory of unsold iPhones.

The pace of iPhone unlocking exploded in the fourth quarter, if recent estimates are to be believed.

(Credit: CNET Networks)

But his fellow analysts jumped all over that presumption on Friday and Monday, declaring that unlocking is a much more prevalent practice than it seems, which would mean iPhone inventory is within normal levels. Mike Abramsky of RBC Capital Markets estimated that unlocked iPhones account for as many as 30 percent of all iPhones sold in the world last year, and Sacconaghi later upped his estimate to 27 percent, or sales of 1 million unlocked iPhones in 2007.

So how has Apple tried to curb unlocking? First of all, it imposed limits on the number of iPhones that could be sold per person to two units in late October, and required that buyers use a credit card. This was done to discourage unauthorized resale of the iPhone, especially among resellers who purchased iPhones for resale in countries that use GSM networks but where Apple has yet to launch.

More important, as Apple got ready for the launch of the iPhone in the U.K. and Germany in early November, the company changed the way the iPhone loads software from flash memory to only permit only certain kinds of software from loading into the main memory. This is called the bootloader, and moving to a new version of the bootloader automatically caused problems for the iPhone unlocking community.

Up until that point, it had been relatively easy to unlock the iPhone by just downloading software and buying new SIM cards from any number of different outlets. But the release of those new iPhones created a roadblock for the hacking community that it still hasn't managed to solve through software. iPhones purchased prior to November 9 with older bootloaders can still be unlocked, even after they have upgraded to the 1.1.2 firmware that was released on the same day as the iPhones with the new version of the bootloader.

This was an extremely frustrating development for the unlockers, although work continues on finding a software fix. Post-November 9 iPhones can be unlocked using a couple of hardware methods that involve disassembling and tweaking the iPhone itself, or cutting away a little piece of your SIM card and taping it to another SIM card. As you might have guessed, those aren't exactly foolproof, and anyone who tries runs a serious risk of inflicting permanent damage.

But despite these hurdles, somehow many more iPhones were unlocked during the fourth quarter as were unlocked during the third, if the estimates are accurate. Analysts accepted Apple and AT&T's explanation for the gap during the initial weekend that a significant amount of iPhones were in transit as the weekend (and the quarter) came to a close on Saturday night, and the widespread activation problems experienced that weekend certainly could account for some of that gap.

But if only 250,000 to 300,000 iPhones were bought with the intention of unlocking during the third quarter, that means 700,000 to 750,000 were bought during the fourth quarter if the estimate of 1 million unlocked iPhones is correct, despite Apple's attempts to make life harder for the unlocking community. Put another way, overall iPhone sales doubled from the third quarter to the fourth, and iPhones destined for resale and/or unlocking almost tripled.

It's pretty easy to find an unlocked iPhone on eBay, and they are selling for between $450 and $700, well above the locked iPhone price of $399. And given these numbers, it's not hard to imagine finding plenty of unlocked iPhones in above-board and underground shops around the world.

Unlocked iPhones don't hurt Apple in the short term, as the company still gets the hardware revenue and the walking advertisement for Apple that is an iPhone user. It's the opportunity cost of the unlocked iPhone that really hurts Apple; the sweetheart deal it signed with AT&T entitles the company to a portion of the revenue taken in by AT&T for data use over its network.

And it will also make it harder for Apple to roll out the iPhone with exclusive carrier partners around the world. Apple is said to have a five-year exclusive deal with AT&T for iPhone distribution in the U.S., and if unlocking is rampant, AT&T's going to start wondering why they are giving Apple so much money on the revenue earned from locked phones when so many are going unlocked.

[inachu]

I have an iphone and I am thinking of unlocking it.

I love my iphone and I have patched it to the latest version.

Right now I feel like Appple is making me play the waiting game.

I am a gamer at heart. If Appple holds out for 6 more months not releasing any good quality games that can be downloaded and run localy on the phone then yes I wil unlock it and play all the coolest emulators.
The hubris of apple not listening to the gamers out there is a sad case indeed! Look at the other cell phones that have games!

[Lee in San Diego]

More yellow journalism

Explodes? Sounds like almost every iPhone owner is unlocking their
iPhone.

[pabo]

Got mine from an Apple Store

I am not so sure that Apple takes unlocking so seriously. At
least they don't car about selling phones in their store that will
be used outside of the wholy grale of apple authorized
networks. I know in my smaller circle here in Luxembourg at
least 10 people how have iPhones (some unlocked, some with
this new f..g 8-) boot loader). Some of them even resell them.
One of them signe an article in a national newspaper about his
(very positive) view on the iPhone and how he unlocked it.
Actually a friend of mine who travels frequently to the States
brought mine with him. And trust me it wasn't the only phone
which he brought over ... through the customs ... and most of
all, all of them from the Apple Store ... and they knew about the
intention .

PS: Look at me previous posts ... i am a Macboy 8-) ... but Steve
is definetly on the wrong trip here.

[jumpjetta]

There really are two types of unlocking...

The story fails to differentiate.

There are those who want to run the iPhone on other networks...
and thus unlock the SIM. Bad for AT&T / Apple.

And there are those who want to enhance their iPhone with
additional applications and aesthetic customization (like me.)
Not bad for AT&T / Apple. In fact, probably good. More software
equals better value in buying the phone.

My phone was unlocked for the purpose of adding software and
customization until Apple released its recent update for the
iPhone. I used to have a full-featured text editor, a real AIM chat
client, SSH, disk storage, and games. By comparison, my phone
now seems far less useful. A good phone, but not a full-fledged.
computer.

[cwkoller]

How is this bad for Apple?

The more iPhones Apple sells, the more iTunes sales, the more
brand loyalty, the more "halo effect" that leads to Safari browser
adoption, Mac sales, Apple peripheral sales and Apple software
sales.

Millions of otherwise non-Mac users are carrying mini MacOSX
computers in their pocket. The SDK is about to released and the
functionality (and profitability) of these machines is about to rise
considerably. Certainly it would be great if all users were with
AT&T in order for Apple to get its unprecedented cut of the
service pie.

But given that AT&T is a deal breaker for some, I'm sure Apple
would rather have the rogue user (who still has to pay for the
phone) than no user at all. Windows/Office spread by becoming
the most pirated software in history - they didn't see a dime, but
secured corporate mindshare as a result. Apple makes hundreds
of dollars in hardware, AppleCare and Apple Store sales. And as
a result, iPhones in the enterprise (along with Macs) are
becoming much more likely. It's all about pecking away at that
90% tower of competitive cash that MS, Dell, HP and others
currently enjoy. It's a mistake to look at the iPhone in a vacuum.

When the 5-year countdown ends (if legislation doesn't hasten
the demise of mobile service-hardware tying) Apple will be free
of AT&T and users won't have to go underground. I personally
use a BB (company issued) but would happily switch.

[tektaktyks]

THEY DON'T WANT TO SELL MORE?

I really don't understand,if they sell unlocked iphones,they will sell how many more millions?...and how much money they will make?...and they don't want to make that money because?

p.s. is at&t paying apple more for each new account with the iphone than apple makes from selling one?

[john55440]

Or iPhone inventory explodes...

How many of the "missing iPhones" are in inventory, and how many are unlocked? Only Apple and AT&T know, and they haven't released any current figures.

Analysts claims about the number/percentage of unlocked iPhones is pure speculation, with no basis in fact.

[Ilgaz]

Why wouldn't Apple copy Symbian

Check http://www.s60.com , owned by Symbian.

Look at that scene. Now look at Symbian community sites like
my-symbian.com .

What was wrong with opening the SDK at first place? There is
no need to re-invent the wheel, Symbian got hit by viruses and
they fixed it by forcing the signed applications and offering free
signatures to open source/freeware apps.

Also what was wrong with J2ME? If I was Apple, I would offer
the first ever REAL Java (desktop) on the device. What they did?
They claimed nobody wants java. Oh really? There are 1 billion
J2ME enabled devices on market. Ask if their owners know what
"java" is. They don't. They don't ask for it. They USE it.

If iPhone released with a XCode plugin SDK at first day along
with a J2ME or Desktop Java, it would change shape of industry.
By not shipping a multi platform (Mac first- Win later) SDK/IDE
plugin, Apple managed to make that an expensive toy.

[ygtbfkm]

Offer rebate

Many analysts are suggesting that Apple will drop the price of the iPhone soon in order to
generate more sales. Seems to me the best way for them to do this is by offering a rebate
that is conditioned on activating the phone through the authorized carrier. Tivo had some
deals like that, you only got the rebate if you activated the service. Then, people might still
unlock the phones, but they'd get the boost of a free extra $100 for each one that isn't
activated (plus, of course, the boost from those people who forget to send the rebate in; if
they want to appear friendlier, they'd offer it instead as a $100 credit to the phone bill;
doing this could even be part of the activation process.

Having dealt with Apple rebate programs, they are run very well in comparison to most. Easy
to fill out the form on-line and get pre-qualified, and they sent the check very quickly.

[M C]

"This is all just a guess, but I think..."

That's how an honest article would start. Not that I don't agree there are likely lots of unlocked phones (NOT to be confused with cracked phones running third-party software, of which the number is tiny) out there, but you're just taking a number and running with it.

[cybervigilante]

An Idiotic Idea

Locking the phones to a supplier not everyone likes was a really stupid anti-consumer, anti-market idea that goes against the emerging web ethos. A moron could have predicted it wouldn't work. Heck, it's a major challenge to every hacker genius on the planet. At least a few are smarter than anyone Apple could hire, and once they get a solution it goes viral.

Whatever retarded management deadhead thought this was a good idea should be sent packing. And if it was Steve, he must have been smoking dope at the time.

Hmm, isn't AT&T one of those wonderful folks who let the govt. spy on our calls, and is now whining for legal protection against invasion of privacy suits? That sure gives me confidence in being gulled into using their service. (Not to mention they helped the Nazis during WWII.)

[rnieves1977]

only reason i bought it was cause it could be hacked

Let's face it the apps that come with the default iphone are "okay" at best... the crack for 1.1.3 is already out and easily upgradeable on a jailbroken phone. The iphone with plan cost a ridiculous amount of money. Screw AT&T i got my phone on their network no problem and I didn't have sign any new agreement. If I ever have any problems with the phone I'll just flash it back to default and send it in for repair.

[zoftigone]

Apple would make more $$$$`

I beleive Apple would have made a lot more $$$ if the phones were compatible with any service provider!!

This particular phone should have been deployed that way... All this controversy would not exist and Apple would have sold five times the IPhones they have sold thus far.

[Ngallendou]

When I buy a piece of hardware...

... it is mine to do with as I wish. I may choose to canibalise it for parts, smash in with a sledge hammer, alter it to suit my wants. I really have no interest in agreements that the manufacturer may have made with a third party. The government's role is to protect me from lecherous companies, not to make me into a compliant cash cow for Wall Street investors who believe they own the economy.

[jlleventon]

Here Say, Here Say, Here say

Sounds like idle gossip from people that think they know whats best for everyone.

Have they taken into account how many have been disassembled

makes me feel like such the individual.
I wish my dad bought me a care and helped me work it effectively.

I'm gonna go break something

[SFSDCris]

Article takes estimates as fact

Article takes estimates as fact with no effort on the author's part to verify. Don't waste our time. What do I read CNet when articles are really really bad? Good question. I think I'll spend more time on Gizmodo.

[SenorFrog]

Hackers vs Apple

I think the bottom line is, Apple underestimated the hacker community's excitement over the iPhone. While there are other mobile devices loaded or that can be loaded with a 'nix, the iPhone's design with Mac OS X was just too incredible of a device not to want to play with, hacker or not. Steve Jobs just didn't realize that when he introduced the iPhone and said that web apps were the way to go, that that was like saying, "Hey, here's this cool, fantastic, incredible car that we've inhibited to only go 60 MPH because that's all you need." The hackers said, "Oh no you didn't!" and it was on.

[momo323]

Why cant they just sell it with other phone companies?

I am a big fan of the Iphone however I do not make the jump to buy it because I hear that AT&T is not a good service provider...My question is why wont Apple sell the phone to other carriers...I have been with Verizon for over 10 years and I cant complain at all...Any comments out there? This would probably reduce hacking I think...

[Pat Lamey]

Early Adopters like to Unlock/Jailbreak

Its shouldn't come as a surprise to anyone that the early adopters of the iPhone are also tech saavy enough to a) want to unlock and b) can unlock the iPhone. Simply put, as iPhone volume builds, the absolute number of unlockers will not grow very much. Late adopters will not care enough to take the iPhone beyond Apple/ATT's offerings. They won't want to risk the hardware nor will they have the sophistication to actually get it done.
Look, early adopters of VHS players could set the time correctly. Late adopters simply ignored the flashing "12:00" because it was too much to figure out how to change it.
It is that later group that buys in really large volumes--lots of folks who don't even know what cnet is, for example. And for that group, they won't give a flip about unlock-lock-jailbreak or whatever.

[iphone lover]

Set the iPhone Free

If only the iPhone could sing, surely it would do ?Release Me? by Engelbert Humperdinck. Yes, with all this unlocking activities going on and with millions of iPhones being unlocked, Apple should now set the iPhone free instead of jailing it at the four walls of AT&T.

Mars M.
http://www.iphone-codes.com