Posts Tagged ‘Unlocking’


20,000 iPhones per week tucked into luggage


Comments to Dan Frommer article by dragan_co – Wednesday April 02, 2008 12:10PM EDT


iPhone in Asia Preamble: IMHO dragan_co is largely on target with their “demand side” thesis.  Many pundits and analysts have suggested that the iPhone shortage is evidence of Apple’s “clearing inventory” to make way for a 3G iPhone. The editor of iPhone in Asia believes that both theories have merit, yet not enough attention has been given to the surge in demand for iPhone due to many of the reasons dragan_co lists below. NOTE: dragan_co’s original comment (re-posted below) was included with the replies to Dan Frommer’s article – here > Apple iPhone Shortage Not Related to 3G Introduction


See also > The Secret Underground iPhone World in Russia

comment below by dragan_co


“Wall Street analysts like Gene Munster and Toni Sacconaghi continuously discount the role of international demand in iPhone sales. They do this primarily because they have a very America-centric view of the world in which this 5% tail wags the dog. Not in cell phones.


This is the issue. The customer-satisfaction numbers you see for iPhone in the US are no different internationally, in some cases they are much higher because the price ($399 and $499 is seen as perfectly reasonable, particularly in emerging markets used to paying higher premiums on US prices for Blackberry and high-end Nokia phones).


Demand for iPhones outside the United States is out of control and has reached the point where it has started to impact Apple’s normalized supply chain projections. It’s okay to have a delta of, say, 100,000 units or so per year between actual and forecast. International demand is driving that delta upwards of 1 million. That’s a whole different ball game for component sourcing, quality control and production ramp-up and some things are starting to come unstuck, even for a finely managed company like Apple.


What’s driving this?


1. Free, out-of the box -ready, GUI-based network unlock solutions like Ziphone and iLiberty. Confidence in these unlock systems has grown significantly over time as technical expertise required to use them has fallen.


2. A large, very organized procurement mechanism for iPhones, particularly into Russia, Eastern Europe, India and China. There are people who go from store to store buying iPhones and aggregating them for export to “resellers” overseas.


3. Proliferation of Wi-Fi penetration and the recognition that in GSM countries, iPhone works simply and well enough. Wi-Fi hotspot usage is growing significantly around the world and the iPhone’s superior web browser is taking full advantage to maximize customer experience. It’s the right product at the right time for the macro-trend.


4. The iPhone is relatively cheap to emerging market customers used to paying $500 for a Blackberry and a cheap US Dollar makes it an even better deal. For example in Russia, at $499, a16GB iPhone translates to around 12,000 Rubles. An 8GB Nokia N95 costs $815 or 20,000 Rubles. The value-for-money perception with iPhone is absolutely huge.


5. Zero or minimal compatibility issues on GSM Networks. I have used my iPhone with SIM cards from 32 different networks in Europe and developing countries. It works seamlessly. The iPhone is a quad-band GSM phone, meaning that it supports all four major GSM frequency bands, 850 and 1900 MHz bands which are used in the Americas, and 900 / 1800 MHz bands used in most other parts of the world, making it compatible with all major GSM networks worldwide. 2 billion people around the world use GSM phones.


To give you an idea of international demand; There are Nigerians shipping more than 500 phones a week from New York to Lagos and Nigeria is a third world country. The EDGE Internet works perfectly, albeit just as slow, there and data is very, very cheap at $5 per 100 MB of usage.


“Data-driven” analysts like Munster and Sacconaghi get misled by the laziness of long-distance US-chauvinist analysis into making market projections based on perfunctory GDP per capita statistics and “population living on less than dollar per day” figures. They look at the wrong data because they think the world works in the same way everywhere. This weak analysis disregards latent middle and upper income demand in developing countries.


If you define a potential user as someone who can afford to pay twice as much for an iPhone and double what an AT&T subscriber pays per month, there are at least 7 million potential iPhone users in Nigeria, 9 Million in South Africa, 80 Million in India, 25 Million in Russia, 25 Million in Brazil, 8 Million in Indonesia and 100 Million in China. Not all of them will be users but just 5% of this number is way more than 10 million. Considering mobile phones are some of the most universally adopted products on the planet, a good GSM phone reaches Iran and Iraq much faster than people on Wall Street can ever imagine.


From research I’m conducting, we have conservative numbers of grey market as follows:

·      Russia 2000-4000 phones/week

·      China 4000-6000 phones/ week

·      Demand from Western Europe is slower but still significant, averaging anything from 2000-3000 units/week from New York and other big cities with international airports.


Now, not all the phones shipped from New York are bought in NYC but the export pattern is clear and very strong. I have completely ignored the cash-flush Middle East where Dubai has always been a world-leading port in grey market clearing and forwarding for consumer electronics.


Conservatively speaking, something is sucking 15,000-20,000 iPhones/week out of the United States. If this phenomenon is coinciding with steadily growing adoption among US customers, suddenly the slack Apple had is drying up.


Many of the millions of visitors coming to the United States every month are going back with a packed iPhone in their luggage. It’s one of the things people are expected to buy when they come. Foreign nationals are not very likely to buy iPhones at an AT&T store because the requirements are inconsistent (some stores were requiring SSNs, existing phone numbers and/ or activation), queues are long (non-starter for people with a limited window to get back to the airport), lack of other Apple products (iPods etc) and accessories and simply, AT&T stores are not landmarks.


Finally, the reason why used iPhones will begin to show up on eBay and other consumer-to-consumer sites in Europe is because individuals who speculatively buy an iPhone to resell are up against “organized unofficial” suppliers. You’re much more likely to buy a phone from an expert hacker if you worry about fixes and other things. And yes, the parallel market is showing budding signs of getting sophisticated at providing some of the support Apple wont provide.


Oh well, maybe it’s just version 2.0 coming out soon.

I think not 🙂 …”


~ dragan_co – April 2, 2008


See also > The Secret Underground Phone World in Russia


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Wall Street Journal, April 5, 2008 – Page B16

WSJ: When iPhones Go Missing

Are Tourists Snapping Up Devices and Selling Them For Use on Other Networks?

Full Wall Street Journal article > HERE

Where are all the iPhones? Apple sold 3.7 million of its hit mobile phones last year, but its official partners only registered 2.3 million new customers. Meanwhile, many of its U.S. retail stores are selling out of the handsets. Apple is tight-lipped, but the two stories could be related.



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bw_255x54-1TECHNOLOGY February 12, 2008, 12:01AM EST


Inside the iPhone Gray Market

A global network is thriving by selling up to 1 million iPhones that bypass Apple’s restrictions

Encamped along the aisles of the massive Zhongguancun Kemao Electronics Market in Beijing are many people like Li Zhongxin, of the Beijing Xinyu Lianhe Telecom Equipment Co. Li sits atop a plastic stool in front of his open-air stall on the third floor, scanning the throngs of shoppers for would-be customers. There’s no sign of Apple’s iPhone among the thicket of cell phones, handset covers, and other accessories hung on shelves and inside the waist-high glass display case, but he’ll be glad to show you one. In exchange for an up-front payment, “you can buy as many as you’d like,” Li says.

The assertion may seem misplaced in a country where Apple (AAPL) has yet to introduce the iPhone. The device is officially on sale only in the U.S., Britain, France, and Germany, where Apple has signed exclusive contracts with cellular carriers including AT&T (T). Yet Li’s booming business is the very real byproduct of pent-up demand for a much-hyped device made by a company that places strict limits on where and how it’s sold.

And Li represents only a sliver of the intricate, widening global iPhone gray market that encompasses no-name importer-exporters in China, a semiconductor maker in Eastern Europe, businessmen in the Midwest and Australia, and “runners” enlisted to buy as many iPhones as they can from stores run by Apple and its partners in the U.S. and Western Europe. And, of course, there are countless small retailers willing to buy and then sell iPhones at jacked-up prices to consumers worldwide.


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 (BusinessWeek.com, 1/28/08).

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.

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.


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.

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,O2Orange, and Deutsche Telekom’s (DT) 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.

While Apple takes in hundreds of dollars per iPhone sale when customers activate service with one of its partners, most analysts say the unlocking craze helps spread Apple’s brand awareness. The greatest risk might be a lawsuit seeking to shut down the illegal purchase of iPhones. Apple and AT&T restrict the number of iPhones a person can buy. In recent weeks, AT&T Mobility filed suit against resellers of its GoPhone, alleging the businesses hack the cheap handset and then sell it for higher prices. AT&T spokesperson Mark Siegel wouldn’t comment whether the company will sue people who improperly buy iPhones, though he adds the iPhone is “meant for use by the person who buys it” and not to be resold for commercial purposes.


The gray market has also gotten a push forward from exchange rates. With the dollar falling, consumers from Europe and elsewhere can get a better deal on an iPhone during a trip to the U.S. than buying it at home. Gray marketers saw the same opportunity and began recruiting a range of people to secure iPhones.

Sometimes, it is as simple as asking friends and family members to tap out their limit, which for individuals is five phones at Apple and three at AT&T. One reseller admits he 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 for his “employees.” Deng Aijun, sitting in an unnamed stall elsewhere in Beijing’s Zhongguancun Kemao Electronics Market, admits that “We get people like airline stewardesses to bring the iPhones over for us.”

Some of the iPhones on the gray market may be leaking out from points closer to the source: the big Chinese factories where they are assembled. One distributor says he believes his China-based source gets iPhones from factory workers. One of this distributor’s suppliers recently gave him an internal Apple document showing the schematics of the original iPhone, as well as repair instructions. The most likely explanation is an Apple employee or contractor stole the documents, possibly to sell to would-be unlockers.


Returned phones also find their way into the aftermarket. Hilliard (Ohio)-based Cellucom Group, a cell-phone refurbisher, gets 400 to 500 iPhones a month from retailers and phone recycling outlets, says Charlie Taylor, Cellucom’s director of carrier relations. Like most refurbishers, Cellucom won’t tinker with phones that appear to have been altered already. Instead, the company sends the devices to wholesalers in Miami and New York who in turn repair and then unlock the phones.

Like many gray markets, the iPhone aftermarket is fraught with risk. For starters, many iPhone buyers are fraudsters, says Shawn Zade, a senior sales associate at WirelessImports.com, which sells unlocked phones. In the case of non-iPhone handsets, fewer than 1 in 100 purchasers try to use stolen credit cards, he says. With the iPhone, the rate is about 1 in 5. To control fraud, Zade requires buyers to submit copies of credit cards and driver’s licenses.


The biggest risk is the inherent unpredictability of the market—an artifact of the cat-and-mouse game between Apple and the software hackers who make unlocking possible. Last September, an Apple software update rendered unlocked phones useless, but it was quickly followed by a software hack that made it simple to unlock iPhones. Demand for so-called Franken-SIM cards sold by Prague-based Bladox and other more involved services to unlock iPhones plummeted. A glut of more than 100,000 unlocked iPhones ensued. One example: VOTech, a small outfit in Australia, saw more than 1,500 out of its 2,000 outstanding orders evaporate, leaving it with heaps of inventory and a fraud investigation by eBay’s (EBAY) PayPal, which locked its account, says owner Alex Voevodin. Only after another Apple software update shut down the so-called “software unlock” did demand growth resume for these electronically altered gray-market phones.

None of that is stopping other players from entering the market. One of them is PDA Cable, a one-man operation owned by 29-year-old Nathan Walberg. Five years ago, Walberg said good-bye to his job as a cell-phone salesman and set up shop in a 30-foot-by-30-foot office in his backyard. Using the Web and other sources, Walberg scoured the globe for cheap parts and accessories for a range of cell phones and iPods, which he resells from his Web site, pdacable.com.

In January, Walberg found a cheap Turbo SIM knockoff sold by a Chinese supplier. He packages the device to create an altered SIM card and sells them for $44. His customers include London businessmen and retailers in Mexico, Brazil, and other locales. He’s even getting calls from carriers that don’t want to share their profits with Apple, as AT&T and others have agreed to do. That way, customers can come in with their iPhone, buy Walberg’s device, and skirt Apple’s exclusive provider. “I don’t know if [these carriers] can legally encourage unlocking, but they’re not going to discourage it,” says Walberg. “This market will go on forever, because I don’t think there’s a way for Apple to stop us.”

Burrows is a BusinessWeek senior writer in Silicon Valley.
With Olga Kharif in Portland, Ore., and Chi-Chu Tschang in Beijing.


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6711-iphoneside.jpg  beijing-iphone.png

MacDailyNews Full article > HERE

China Mobile: 400,000 unlocked Apple iPhones on our network at end of 2007

Friday, February 15, 2008 – 03:28 PM EST

“The shock wave caused by the Apple iPhone has been spreading from the US to China at an unbelievable rate. Savvy entrepreneurs have been purchasing hundreds of thousands of iPhones in the US and Europe, then “cracking” the operating system to allow the device to be used on any GSM network. According to China Mobile, the biggest wireless carrier in China, there were about 400,000 cracked iPhones using its cellular network service at the end of 2007, representing one out of every 10 iPhone shipments announced officially by Apple. The figure surprised us as it is fourfold of that we estimated before,” Anty Zheng reports for In-Stat China.

MacDailyNews Take: There’s nothing like granting Steve Jobs massive bargaining power and carte blanche to negotiate from a position of strength.

“We have never doubted that the iPhone will achieve greater success than iPod in China if Apple teams with China Mobile to launch its Chinese version. There are two reasons. Firstly, different from the US where the smartphone market is fairly limited, appealing primarily to business users, The smartphone market in China, though, is an entertainment-oriented individual consumer market. The main reasons that Chinese mobile users purchase smartphones include entertainment (such as music players, cameras and video) and to access mobile Internet applications (such as IM, e-book, and games). We believe the iPhone will be favored by these consumers as it can better meet such demand. Secondly, high-end handset buyers significantly outnumber high-end mp3 player buyers. We estimate that 20% of handsets sold in China in 2007 cost more than 4,000 RMB (US$533). In another words, there are an estimated 28 million potential users for the iPhone in China.,” Zheng reports.

“Further, the iPhone is not just a successful product. In-Stat feels that the iPhone is leading the way to a new generation of smartphones that are very different from their older counterparts. One important trend is that revolutionary UI and UE, enabled by touchscreens and 3D sensor technologies, will be widely used in the next generation of smartphones in China and around the world,” Zheng reports.

“Also, the trend toward the mobile Internet will drive handset makers to deliver more smartphone models. More Internet applications, such as social networking, maps, search, and e-mail, will be developed for smartphones, and these will make the iPhone and other smartphones more attractive to mobile users who like to use their handsets to pass the time. In turn, the mobile Internet will become a new selling point for smartphones, and drive up sales. Taking the long view, In-Stat believes that the smartphone is evolving into a increasingly wide range of mobile devices, where cellular voice communications are just one function of the converged appliance,” Zheng reports.

For more information about Chinese smartphone market, check out In-Stat’s recently published report titled “Mobile Internet and GPS Change the Future of Smartphones in China,” available online at: http://www.instat.com/Abstract.asp?ID=279&SKU=IN0703655CWW

[Thanks to MacDailyNews Reader “Mike in Helsinki” for the heads up.]

MacDailyNews Take: Well, now, there’s a rotating, mile-high by mile-wide, blinking neon billboard screaming “Apple’s iPhone will rule the world!” One question remains, of course, is that large and bright enough for Wall Street to finally be able to see it, read it, and understand what it means?



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 6711-iphoneside.jpg  chinamobilelogo.jpg

China Mobile: 400,000 Unlocked iPhones On Our Network


by Dan Frommer – Silicon Alley Insider

EXCERPT: An eye-opening stat we hadn’t seen until today: China Mobile, the biggest wireless carrier in China, said there were 400,000 unlocked iPhones operating on its network at the end of 2007.images2.jpeg

If true, that represents more than 10% of the 3.7 million iPhones Apple (AAPL) sold last year. Market research firm In-Stat, which included the stat in an email newsletter today, said that total was four times what they had previously estimated. That helps explain where many of the “missing” iPhones have wound up.

Full article > HERE


The hunger for iPhone (Ai Feng) in China is so strong that unlockers are willing to:

·      Pay a premium (USD $250 to $500 above retail to own a hacked iPhone)

·      Own a non-warrantied iPhone

·      Forego visual voicemail

·      Forego regular software upgrades that would otherwise ‘brick’ a ‘jailbroken’ iPhone.

What this massive unlocking in China shows is that there is a very strong demand in China (Captain Obvious award).  And this demand will only accelerate once the new 3G iPhone is officially launched in China.


As one astute iPhone owner put it …

“Would you want a hacked, non-warrantied iPhone you couldn’t run a software update on?  If the choice was that, or wait a few months (when iPhone officially arrives in your market), I’d choose ‘wait’ easily. I think 97% of folks want to just walk in a store, buy an authorized iPhone and use it normally – warrantied with updates … even if it means switching carriers.

I think we are just getting a tiny percentage % of advance sales from tinkerers, hackers etc., and from the folks willing to pay a premium, take risks, and have bragging rights.  Guess what, this same demographic will all want the Apple 3G iPhone the second that it’s available as well.”

… “I can’t see this as anything but a good sign about insane demand, worldwide.”



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Massive Unlocking is a Sign of Massive Demand 

And product “demand” is rarely a bad problem to have – Business 101.

Businessweek has just published an article Millions of iPhones Go AWOL reviewing the surprisingly high volume of unlocked iPhones.  The article notes that 800,000 to 1 million iPhones have been ‘jailbroken’ for use on carriers’ networks that don’t presently have an agreement with Apple.  The article highlights that demand for ‘hacked’ iPhones is much greater than analysts had anticipated and further notes that China has a particularly robust black-market in unlocked iPhones.  The Businessweek piece also outlines the problems Apple faces as it defends the “exclusive carrier + rev sharing” business model.  Yet the article fairly points out a number of ways Apple might use this unlocked iPhone ‘demand problem’ to its advantage as future carrier agreements are negotiated.

A number of pundits and business journalists have been quick to find problems for Apple resulting from this unlocking phenomenon.  Apple has exclusive iPhone distribution contracts with their carrier partners and revenue sharing is an important part of these agreements.  Unlocked iPhones do not generate cash-flow to Apple from ongoing subscriber payments (i.e. no revenue for off-network iPhones).  Apple has not made their carrier/partner revenue sharing split public, leaving analysts to do a bit of guesswork.  Most have speculated that this number ranges between $8 to $12 per month per subscriber.  Over the life of a two-year contract this amounts to an additional $192 to $288 to Apple for authorized “on-contract” subscribers.    

Many on the Street (market players) have seized on this “massive unlocking” story to pummel AAPL shares. Yet the other side of the story is only beginning to be realized.  It is simply this … Massive unlocking is a sign of massive demand. And product “demand” is rarely a bad problem to have (Econ 101).  Right now, the hunger for iPhones worldwide is so strong that unlockers are willing to:

  • Pay a premium ($150 to $500 above retail to own a hacked iPhone)
  • Own a non-warrantied iPhone
  • Forego visual voicemail
  • Forego regular software upgrades that would otherwise ‘brick’ a ‘jailbroken’ iPhone.


As one astute iPhone owner put it …

“Would you want a hacked, non-warrantied iPhone you couldn’t run a software update on?  If the choice was that, or wait a few months (when iPhone officially arrives in your market), I’d choose ‘wait’ easily. I think 97% of folks want to just walk in a store, buy an authorized iPhone and use it normally – warrantied with updates … even if it means switching carriers.

I think we are just getting a tiny percentage % of advance sales from tinkerers, hackers etc., and from the folks willing to pay a premium, take risks, and have bragging rights.  Guess what, this same demographic will all want the Apple 3G iPhone the second that it’s available as well.”

… “I can’t see this as anything but a good sign about insane demand, worldwide.”

Unlocking: The editor of iPhone in Asia strongly discourages unlocking iPhone. Wait for an official iPhone launch in your country. The iPhone is not a prisoner to fixed buttons and it is designed to evolve. Buying an iPhone from an authorized carrier/distributor will allow the owner to easily upgrade as new features are released.  

iPhone VIDEO HERE  (Unlocking Issues and iPhone Demo – Chris Griffith The Australian)

EXCERPTS from Businessweek:


Full article > HERE


Some 800,000 to 1 million iPhones had been unlocked by the end of 2007, the sources say. The high end of that range far outpaces most analysts’ assumptions of 750,000 unlocked phones. The vast majority of those phones are trickling into nations around the world where Apple has yet to sign up a local carrier—especially China, say industry sources (BusinessWeek.com, 12/4/07). “In my travels around the world, two out of three iPhones I’ve seen outside of the U.S. have been unlocked,” says Richard Doherty, director at consultant Envisioneering Group. “In China, nine out of 10 phones are hacked.”


But are unlocked phone sales really so bad for Apple? In countries where the iPhone isn’t yet legally available, unlocked devices may function as part of the company’s hype machine. Every time someone flies home with an armful of iPhones purchased at a local shop or online, it revs up awareness of Apple’s brand. That, in turn, could make it easier for Apple to strike more carrier distribution deals and make a case for better revenue-sharing terms. After all, unlocked devices sell for as much as a 70% premium to Apple’s retail price on foreign gray markets.


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