Huge iPhone gray market thrives worldwide with little interference from Apple

“BusinessWeek sources confirm analyst reports that 800,000 to 1 million iPhones, or about one-fourth of the total sold, are ‘unlocked’—that is, altered to be able to run on networks other than those of Apple’s exclusive partners,” Peter Burrows reports for BusinessWeek.

“This iPhone aftermarket didn’t take long to develop. By the time the device went on sale on June 29, 2007, software hackers and companies that specialize in unlocking cell phones were already searching for ways to make the iPhone work on nonsanctioned networks. Within weeks, online forums were buzzing with an answer that emanated from a tiny company based in Prague, Czech Republic,” Burrows reports.

“Pavel Zaboj is a 36-year-old former math student who together with friends developed an electronic device called Turbo SIM that was designed to turn cell phones into mobile payment systems. Turns out Turbo SIM could also be used to trick the iPhone into thinking it’s operating on AT&T’s network. By mid-August, Zaboj’s 10-person firm, Bladox, was being flooded with orders, particularly from Canada and Mexico, where Apple addicts didn’t have to venture far to get an iPhone. Bladox was totally unprepared, and couldn’t fill the orders that rolled in. “‘We just sat their open-mouthed,’ Zaboj says,” Burrows reports.

“Bladox has sold devices used to unlock phones in roughly 100 countries, including French Polynesia and Afghanistan, Zaboj says. BusinessWeek readers report iPhone sales in Brazil, Canada, the Dominican Republic, Indonesia, Israel, Nigeria, Peru, Poland, Russia, and the United Arab Emirates,” Burrows reports.

“The boom is being fueled not just by short supply of a hot product, but also by scant evidence of interference from Apple or its partners. Apple-authorized partners—AT&T, O2, Orange, and Deutsche Telekom’s T-Mobile—lose hundreds of dollars in monthly fees when subscribers forgo a two-year contract in favor of unlocking. But the bulk of the unlocking seems to be occurring in places where customers have no authorized carrier to choose from,” Burrows reports.

More in the full article here.

17 Comments

  1. I have several friends w/ unlocked phones, but I don’t get it. They are all running the original firmware that doesn’t have all the bugs addressed, they don’t have all the features I do, and their phones wont keep getting better over time the way the rest of ours will.

    What’s the point? Sign the stupid contract. For what you get it isn’t that much to pay!

    In cases where people are in places that don’t offer iPhones on the other hand, I totally see the draw… But here in the US where it is readily available I can’t see the point.

  2. yet again proving the iTunes model. If you give customers a legitimate method of buying a product or service, they usually will go the legal route. They generally only go the illegal route when a legal method isn’t available or is completely unpalatable (HELLO, RIAA and Verizon)

  3. What can you do when you want the iPhone in Hong Kong? You get one unlocked. The original software is still the best smartphone experience out there, so using the first version is a no brainer. But…I would love the official version in Hong Kong ASAP! The media as reported 100,000+ grey market iPhones in Hong Kong. I do see it everywhere.

  4. This is Apple’s first penetration into many countries that have never known the fun and function of Apple products. This could produce an unprecedented global halo effect. There are still some pretty big obstacles and hurdles however.

  5. Lose hundreds of dollars in monthly fee? That’s putting it strongly. They still sell it for a profit, the carrier still earns money, Apple just isn’t getting their kickback and the authorized carrier is losing out on the contract assuming there’s even someone carrying the iPhone legitimately in the country. C’mon, where’s the real news?

    Yawn!

  6. One more thing…

    Who owns the phone, the person that just shelled out money for it or Apple / it’sPartner? If I shell out money I expect to do whatever the hell I want to with it.

    Signed: No cell phone at all here.

  7. So Apple….if you would just sell unlocked phones how much more revenue would you make?
    Imagine if the iPod followed the iPhone business model – only available to use the music from one music provider. I doubt the iPod would be where it is today.
    Last quarter (in three months) Nokia alone sold over 133,000,000 phones worldwide.
    Apple?

  8. Just like Steve Jobs came to the conclusion he had to change his strategy for Apple TV and to offer movie rentals, he will also have to change his for iPhone.

    The fix is easy:

    1) Don’t want to deal with any of Apple exclusive carriers? iPhone is not avalable in your country? Buy an official unlocked iPhone for a premium!

    2) Apple and the exclusive carriers split the extra revenues of premiums if the phone is bought to be used in a country where iPhone is available.

    3) No need to hack your iPhone + you get to enjoy all features and updates… Everybody is happy.

  9. Nobody is losing any money to the unlockers; not AT&T;, and not Apple. Presumably, though, we could say that Apple is losing money by not selling the phone at the full price it normally gets (around $800, when you combine $400 retail price plus AT&T;’s kickbacks over two years). Apple had calculated this when they launched the device. They knew there would be unlockers (they probably didn’t expect that many) and they accepted that. The profit on the unlocked devices might not be as high (manufacturing cost of iPhone is around $230), but it is still a solid profit (inline with the iPods).

    The only ones getting away with it are the people that actually get an unlocked iPod for half price (i.e. $400, no strings attached). Retail price for an unlocked iPhone is 750 EUR (in jurisdictions where law requires selling unlocked devices). Compared to the 350 EUR price for a locked one, this would be an equivalent of roughly US$800 in the US. Obviously, nobody would buy an unlocked iPhone for $800, so they get a locked one and unlock it.

    As Tim Cook (Apple CFO) said of unlocking, “…it is a good problem to have”.

  10. @Mac+
    “Everybody is happy.”
    Except the carriers that have negotiated major concessions to be EXCLUSIVE carriers. AT&T;doesn’t care about iPhones in Hong Kong, but they can’t be happy about unlocked iPhones in Los Angeles. That business, by contract with Apple, is supposed to be theirs. There’s nothing they can do about, but they aren’t happy. And while there is still opportunities to sign exclusive carriers around the world that will drive residual income over multiple years, don’t hold your breath for an Apple-sanctioned unlocked iPhone. None the less, I’m sure Apple sees the majority of unlocked phones as sales it would not have gotten otherwise, so is a net gain, not a loss.

  11. I’ve been using my unlocked iPhone in Hungary since September. With the exception of a small problem (fixed in a couple of days) upgrading to 1.1.2, I am totally enjoying my unlocked phone. After an easy upgrade to 1.1.3 last week, I’m enjoying it even more! I have to admit that I’ve contributed to BW’s estimated 800,000+ unlocked phones. I’ve brought back four for friends. I also know several other people who have brought over multiple phones for friends for use here and in other countries with no iPhone sales. I suppose one could argue that Apple has lost potential future revenue from me and my friends in terms of its cut from the phone company contract. On the other hand Apple did collect its $399 from me for the phone. It’s also going to collect even more from me as I upgrade to the 16GB phone and buy a couple for employees of my company.

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