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New IPhone May Foil Hackers

Associated Press

Benjamin Mosse, director of mobile products for the Associated Press, introduces a new mobile news platform for the Apple iPhone during the Apple Worldwide Developers Conference in San Francisco on June 9.

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The Associated Press

Published: June 11, 2008

NEW YORK - The new iPhone and the way it will be sold look set to shut down a small industry that arose to make the first version of the iconic phone available around the world.

The original iPhone, which launched in June last year, was initially available only in the United States and only for use on AT&T Inc.'s network. In little more than a month, however, enterprising hackers found a way to "unlock" the phone to make it usable on other networks, including networks in other countries.

IPhones soon flowed out of the United States, and analysts have estimated that one-third to one-half of the phones sold never made it onto AT&T's network.

"I saw it in action and I had to have one," said Ernesto Zeivy, a 50-year-old restaurant owner in Mexico City. He had one friend buy an iPhone for him in San Diego for $500 and another unlock it using software downloaded from the Internet.

Apple announced a new iPhone on Monday for use on 3G, or third-generation, data networks. It will stem the flow of unlocked phones in two ways.

First, the phone will be sold in more countries. Apple added five countries beyond the United States for the first phone, but the second one will go on sale in 22 countries on July 11. Apple has said it will add more countries at a rapid clip and reach 70 by the end of the year. That takes away one of main incentives for unlocking.

Second, Apple is abandoning the unusual arrangement under which the iPhone was being sold. Customers could buy them from a carrier or from Apple without activating them on a service plan, and that meant customers could go home and unlock the phones - and never sign up with AT&T.

"Anyone can unlock it without paying anyone anything," said Blas Caballero, another iPhone user in Mexico. "It's so easy. A minute-and-a-half, and all you have to do is push a button," said the 32-year-old Argentine, who owns a bar in Mexico City. He bought his iPhone in New York.

The new phone will be subsidized by carriers, which accounts for its lower price: $199 for the 8-gigabyte model, down from $399. This brings the phone's marketing in line with standard industry practices.

The carriers plan to make back what they spend on the subsidy through service fees, which means they likely will require two-year service contracts from everyone who buys the phone. AT&T said buyers will have to activate service before leaving the store with an iPhone.

"It's looking pretty bleak for unlockers," said John McLaughlin, founder of Uniquephones.com, a New York-based company that sells unlock codes for cell phones. After being warned away by AT&T's lawyers, it doesn't help unlock iPhones. Unlocking software is available free online.

Apple tried to secure the device technically with its software updates, but couldn't. It's the requirement that buyers of the new phone sign up for service in the store that will be hard to get around, McLaughlin said.

Freeit4less, a company based in Syracuse, Utah, has posted prices on its Web site for unlocked 3G phones at $100 above store prices, but chief executive Kyle Jourdan said the company is not accepting any preorders given uncertainty surrounding the activation requirement.

"We're just crossing our fingers and hoping for the best," Jourdan wrote in an e-mail.

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