updated 11:30 am EST, Tue January 29, 2008
1/4 of iPhones unlocked
Over 25 percent of those who have bought US iPhones to date are using them on networks other than the intended one, says Toni Sacconaghi of Bernstein Research. Reuters quotes the analyst as basing numbers on discrepancies between Apple and AT&T, the latter of which is the only authorized iPhone carrier in the States. By the end of 2007, some 1.45 million iPhones were "missing in action," built but not subscribed to AT&T. The carrier is believed to have held 480,000 of these back as inventory, but that leaves nearly 1 million -- 27 percent -- unaccounted for.
Because people must officially activate iPhones via iTunes before use, and this directs people into an AT&T contract, any other use must involve some form of unlocking, whether through hardware or software. Apple itself has admitted that many iPhones may be unlocked, yet following last week's quarterly earnings report, it has still declined to give precise estimates.
iPhone owners can technically unlock their devices under a provision of the Digital Millennium Copyright Act, but Sacconaghi notes that this may cause problems for Apple as well as AT&T. Under the terms of a five-year exclusivity contract, Apple earns a portion of the revenue for each iPhone on AT&T's network; if the former reaches its target of 10 million iPhones by the end of 2008, and 30 percent do not attach to AT&T, revenue could fall $500 million below expectations, with a corresponding earnings-per-share drop of 37 cents.
Apple cannot, however, afford to crack down too hard on unlockers, says Sacconaghi. Eliminating hacks would maintain profit margins, but could alienate the public, shrinking sales and deterring future carriers from signing on in the US or abroad.