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iPhone gray market swells to 800k phones

updated 03:50 pm EST, Tue February 12, 2008

iPhone gray market swells

Comprising an estimated 1 million total units, the iPhone gray market has become a major force in the worldwide mobile phone sales community, stretching from China to Prague to South America. Claiming confirmation of the fact that 800,000 to 1 million iPhones, or about one-fourth of the total sold, have been sold as "unlocked" devices in countries outside Apple's official carrier domain, BusinessWeek profiles some of the more aggressive gray market peddlers who have made a killing on selling the device for unauthorized wireless service providers.

Propelling the flood of unlocked devices is "TurboSIM" -- a hardware modification in the form of a replacement SIM card that allows the iPhone to link with unauthorized carriers. The manufacturer of the TurboSIM card is Pavel Zaboj, who runs a ten person outfit calld "Bladox" in Prague, Czech Republic. Zaboj wasn't prepared for the overwhelming interest in his product. "We just sat their open-mouthed," he says.

TurboSIM solutions work by fooling the iPhone into thinking it is using an actual AT&T SIM card (shipment and pricing information was unavailable). Non-AT&T SIM cards still work with third-party phones when removed from iPhones, and turbosim is easy to install in just a few steps. The tiny circuit does not damage the iPhone in any way.

Bladox has reportedly sold its unlock mechanism in roughly 100 countries, including French Polynesia and Afghanistan.

Meanwhile, iPhone unlockers are using some shady tactics to acquire the iPhones necessary for resale. Apple restricts the number of iPhones that can be bought by an individual in order to curb such gray market activity. BusinessWeek reports that one reseller "got a friend to print business cards and pose as a small business owner so as to dupe an Apple Store manager into letting him buy 100 iPhones." Other reports indicate that resellers are getting their iPhone stock directly from the source -- Chinese factories that manufacture the device. '

The greatest threat to these resellers may not, ironically, be Apple. Instead, the availability of free, open-source software solutions could render the demand for hardware unlock solutions nil. Recently, an iPhone hacker discovered a new way to unlock Apple's iPhone firmware version 1.1.2 without the need to downgrade to a prior firmware revision and then re-upgrade after unlocking the device. The unlock technique relies on a bug that allows hackers to erase the contents of memory within a range of specific addresses, coupled with a second bug that allows users to copy data

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.






by MacNN Staff

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Comments

  1. Feathers

    Joined: Dec 1969

    0

    grey vs gray

    Actually, in most of the World, the market to which MacNN refers, in characteristically inaccurate fashion, is the "grey" market. "Gray" is an Americanism and contrary to what MacNN might like to believe, America is not the only country on the planet, as obviously evidenced by the very nature of the story...duh!

  1. tonton

    Joined: Dec 1969

    0

    Oh give it a break.

    MacNN is an American site.

    In other news... this story is an accurate representation of the potential in iPhone sales Apple COULD HAVE had if they had just released the phone unlocked for sale outside the US.

    Keep the locked version for the American Sheeple, but give the rest of us what is expected in our market.

  1. Jonathan-Tanya

    Joined: Dec 1969

    0

    Good grief

    two awkwards statements...one from the article, another from a commenter.

    A reseller posing as a 'small business owner'....hilarious....a reseller is a small business owner, for the most part! gee!

    And the commentor talking about 'potential' sales Apple could have gotten....no, these are ACTUAL sales Apple HAS gotten. The article suggests without any facts that unlockers may be getting phones directly from the factories that make them, but most analysts have reported a gap between Apple's actual iPhone sales, and the activations by their carriers...and that represents the large unlocked phones...but they were real sales for Apple, nevertheless.

  1. testudo

    Joined: Dec 1969

    0

    Re: good grief

    As for the 'potential' sales, I believe he was talking about (a) the demand for an unlocked phone (b) the amount of money Apple could be hauling in, because there's only a small subset of potential buyers/owners who are willing to buy on the gray (or "grey" for our international "friends") market.

    The point is: How many phones would Apple sell if they didn't insist on locking it down to a single carrier (all out of greed, apparently - apparently they really like that monthly income).

  1. UberFu

    Joined: Dec 1969

    0

    @jonathan-tanya

    "a reseller is a small business owner"

    Best Buy is a Reseller - not so small_

    Wal-Mart is a Reseller - not so small either_

    Your logic doesn't float_ Not all small business owners are resellers and vice-versa_

    I can give you plenty more examples_

    ------------------------- Although I do concur that Apple has not lost direct revenue from the "grey market" sales_ You have to have something in order to lose it in the first place_ It's the same as the RIAA bitching about "lost sales" to music pirates or the movie industry_ If you never made the extra profit in the first place - you didn't have it to lose_ Now if they had made the money and stored it in a bank vault - then someone broke in and stole the money - yeah then they lost it_ Those phones were most likely bought via Apple or another "reseller" but then never activated on AT&Ts Network or whatever equivelant Network in Europe_

    This "lost revenue" they speak of most likely comes from the potential cut of the Service Providers profits due Apple_

    Now this makes me real f****** sad - when you look at what Apple has earned on just the sale of the iPhone itself_ Let's say on average $400 per phone_ Not worrying about the early $600 price or the recent $500 versions_

    On average of $400 each and they are claiming roughly 4 Million+ units sold_ Apple has raked in roughly $1.6 Billion in revenue_

    Damn - poor Apple - I don't think they're gonna make it too many more years - they might as well pack up and go out of business with single product sales numbers like that_

    Then add in the Carrier revenue they receive minus 25% to the "grey market" that they "lost" - and iPod sales and Mac [all] sales - Yep they're not doing so good_ I'm gonna go sell my stock right now_

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