Call it “the anatomy of an industry dustup” or, if you’re feeling dramatic, call in Sherlock Holmes.
After all, over the past week or so, the issue has been dubbed “the case of the missing iPhones.”
Well, are they missing? And, if so, where did they go?
Analysts converged on the question and speculation ran a wide gamut, from Apple Inc.’s allegedly dust-gathering warehouses to a large, unreported inventory backlog at AT&T Mobility and the three Euro-carriers currently offering the device.
One entrepreneur in New York City, however, scoffed at prevailing theories and suggested that few analysts appeared to know what was happening “on the street.” (See related story.) But it remained impossible to gauge the accuracy of various theories on the “missing iPhones” because no reliable data is available on official inventories or gray market shipments.
Shawn Zade, senior sales associate at WirelessImports.com, said that due to a loophole in Apple’s carefully controlled distribution process through Apple and AT&T Mobility stores, he is able to obtain hundreds of retail-ready devices each month and does a booming business in unlocking them upon request or shipping them overseas to other resellers who perform the unlocking procedure, then resell at a profit.
A casual Web search revealed a number of sites boasting of unlocked iPhones for sale, including “iPhone-Singapore,” which offers to serve international customers but also provides “cash-and-carry” services for locals.
E-mail correspondence to The New York Times from more than a dozen countries, in response to a column on the topic, appeared to confirm that the gray market for the iPhone indeed spans the globe, from Canada to Colombia, from China to India.
Zade alleged that Apple is aware of and abets the loophole that serves WirelessImports.com’s business and that of other unauthorized resellers. (Apple did not immediately respond to a request for comment.) Zade said that Apple software updates that “brick” altered iPhones has required more elaborate unlocking procedures. He contended that his reselling business in iPhones is legal – AT&T Mobility has said it is the only authorized channel besides Apple in the United States – and that his sale of unlocking services likewise is legal. But he maintains no brick-and-mortar location for his business and those who seek to unlock their iPhones must call for an appointment or mail-in their device.
Apple and hackers of its iPhone have been engaged in a long-running, cat-and-mouse game since the device’s launch. Hackers have sought to add third-party applications and/or unlock the device from AT&T Mobility’s network, while resellers have sought quantities of the device for profitable resale.
Apple has responded by providing software updates that “brick” altered devices, limited the number of devices sold to any individual and barred cash purchases. Apple also said it would release a software development kit (SDK) next month to foster officially accepted third-party applications.
The news, in brief, as it unfolded:
● First, Steve Jobs said on Jan. 15 that Apple Inc. had sold 4 million iPhones worldwide since the device launched at AT&T Mobility on June 29.
● Then AT&T Mobility said on Jan. 24 that it had activated nearly 2 million iPhones by year’s end.
● The Euro-carriers that have sold the device since November – O2 in the United Kingdom, T-Mobile in Germany and Orange in France – have provided sales estimates that, in aggregate, totaled about 350,000 units. (Orange, by French law, must sell unlocked versions of its phone, but it does so at prices prohibitively high for prospective resellers.)
Anyone paying attention to those numbers – including RCR Wireless News staffers – immediately questioned whether those numbers didn’t present a fairly whopping discrepancy. But it was a Sanford Bernstein analyst, Toni Sacconaghi, who got the ball rolling publicly with a research note after AT&T Mobility’s announcement that questioned whether considerably more than a half-million iPhones were sitting, unwanted, in inventory. Sacconaghi included a generous 20% of Apple’s sales numbers -about 750,000 units – that the analyst attributed to iPhones purchased for unlocking that wouldn’t show up in carriers’ activation numbers.
The Silicon Valley Insider declared the “mystery solved” the next day after it calculated that as much as 25% of U.S. iPhone sales were being diverted into unlocked resales and noted that AT&T Mobility had said publicly that it had inventory not yet accounted for, ready for its nationwide sales channels. Perhaps half the “missing” iPhones were being unlocked and half were in unaccounted-for inventory, the Insider said.
Whether Sherlock Holmes would conclude that the mystery had been solved might spark debate. But analysts, reporters and pundits – as well as AT&T and Apple – might be surprised at the picture that emerged of the gray market for unlocked, resold iPhones that surfaced as a result of the topic being raised.
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Word from the street
Shawn Zade, senior sales associate at WirelessImports.com, said that on the day (Sept. 9, 2007) that a group of hackers announced they could provide an unlocking procedure for the iPhone his firm received thousands of phone calls asking for the service.
The virtual company, which has no physical location, was able to respond to 500 requests on the first day and 3,000 requests within the first three days, he said. The large numbers were possible because, early on, unlocking the iPhone could be accomplished via a software procedure.
When Apple succeeded in providing a software update that “bricked” altered phones, the unlocking procedure became more complex, according to Zade, who contracts out the actual procedure. Today, the iPhone must be opened, its SIM card trimmed and a “wafer” attached that bypasses the device’s security measures.
“It sounds scarier than it is,” Zade said. “The first time you do it, it’s kind of like ripping off a Band-Aid.”
According to Zade, he ships between 500 and 1,000 iPhones overseas each month. His site offers unlocked iPhones for $600 and the unlocking service alone for $180. (Apple and AT&T Mobility retail the device for $400 and the carrier requires a two-year contract.) WirelessImports. com typically warned customers that their Apple warranty is thus voided and offered no warranty on its unlocking work. But if a customer has a complaint, Zade said, the company will attempt to deliver satisfaction.
Many WirelessImports customers in New York are foreign tourists with the means to purchase an unlocked iPhone in-person (presumably with an “appointment”), Zade said. Domestic customers tend to be subscribers of T-Mobile USA who don’t want to switch carriers and enter a new, two-year service contract, he said.
