Many iPhones Likely Hacked, Sent Abroad

SCOTT SIMON, host:

When Apple introduced its iPhone, it also announced a partnership that would restrict users to one cellular network - AT&T Wireless. But an analysis of iPhone sales numbers released this week shows that more than a quarter of the people who purchased iPhones haven't shown up on the rolls of AT&T users. That's about a million people. So where did they all go? The likely explanation is that the phones have been hacked to allow use on other wireless networks, including many in foreign countries.

Dylan Tweney is a senior editor at Wired. He joins us from member station KQED in San Francisco. Thanks so much for being with us.

Mr. DYLAN TWENEY (Wired): Thanks for having me, Scott.

SIMON: Aren't all iPhones supposed to be locked?

Mr. TWENEY: Well, yeah. When you buy them from either Apple or from AT&T, they are in fact locked to the carrier. So you're not supposed to be able to use them on any other carrier.

SIMON: So what happened here?

Mr. TWENEY: Nobody knows exactly. Apple says it sold 3.7 million iPhones, but AT&T says it's only activated two million. So obviously, the big guessing game is what happened to the other 1.7 million. We know that some were sold overseas, but some obviously are just missing in action. We think that people are probably unlocking these and using them on other networks. Most likely the bulk of those are overseas.

SIMON: Overseas, where the phone isn't available yet?

Mr. TWENEY: Yeah. Like China is a really big market for black market iPhones, we found, despite the fact that Apple does not have any official agreements with any carriers there. You can get it at almost any electronics superstore in the big cities in China, and it doesn't cost that much more than it does in the U.S. It's about $474 on average in Chinese electronics stores.

SIMON: I certainly understand why this is a matter of concern for AT&T, because they're not getting a quarter of the customers that they expected, and expanded their network to accommodate them. But is Apple upset about this?

Mr. TWENEY: Yeah, undoubtedly they're upset. The thing that's unusual about the relationship between Apple and AT&T is that Apple is getting a cut of the revenue from every iPhone subscriber from AT&T. And that's really unprecedented in the cellular phone business. Most manufacturers, when they create a phone they ship it off to the carrier and then that's the end of the story as far as the manufacturer is concerned.

In Apple's case, we think they're getting about $10 per subscriber per month. So obviously if those people aren't signing up with AT&T and they're going somewhere else, that's a lot of money potentially that Apple is losing.

SIMON: I mean, Apple is the leader in the industry. They didn't foresee this problem?

Mr. TWENEY: I think probably they foresaw it, and they are - there is kind of a cat-and-mouse game going on between hackers and Apple. You know, the hackers figure out how to break open the iPhone so that it works in the ways they want it to use, and then Apple releases an update that messes up everything that the hackers did. So they're kind of going back and forth. I think Apple certainly anticipated this kind of arms race.

SIMON: Dylan Tweney, senior editor at Wired, thanks very much.

Mr. TWENEY: Thanks for having me.

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