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Apple: 1 in 6 iPhones unlocked

Altered devices are being sold for use overseas

Apple estimates 250,000 of the nearly 1.4 million iPhones sold so far have been altered to work with a carrier other than AT&T. Apple estimates 250,000 of the nearly 1.4 million iPhones sold so far have been altered to work with a carrier other than AT&T. (John Gress/Reuters)

SAN FRANCISCO - Apple Inc. said that almost one out of every six iPhones sold may have been unlocked to run on unauthorized wireless networks, surprising analysts who had estimated the problem wasn't as widespread.

Chief operating officer Timothy Cook said this week that 250,000 of the nearly 1.4 million iPhones sold may have been bought by users with the intention of unlocking them, or modifying the device to work on a network other than AT&T Inc.'s.

Customers who aren't signing up with AT&T, Apple's approved service provider in the United States, are preventing the two companies from collecting monthly mobile-phone fees. Analysts had estimated that between 10,000 and 100,000 iPhones had been unlocked since Apple began selling the device in June.

"I did not think it was that much," said Gene Munster, an analyst at Piper Jaffray & Co. in Minneapolis, describing the 250,000 figure as "huge." He predicted earlier this month that as many as 100,000 users had unlocked the devices.

Some buyers have been purchasing five phones at a time at Apple stores in the United States, modifying the software that locks the phone to AT&T's service, and then reselling the unlocked iPhones overseas.

To quash unauthorized use, Apple released an iPhone software update last month that rendered some unlocked devices inoperable, an approach users described as turning the gadget into a "brick." Hacker groups have since developed software that bypasses Apple's update and allows bricked phones to work again, according to AppleInsider.com.

Apple said it sold 1.12 million phones in the three months ended Sept. 29, topping chief executive Steve Jobs's forecast of 730,000. Apple had sold 270,000 iPhones in the first two days after the product's June 29 debut.

To spur sales, Jobs cut the price of the iPhone by $200 last month to $399. The company aims to sell 10 million of the phones in 2008, capturing 1 percent of the mobile-phone market.

The price cut helped "accelerate" iPhone sales, Cook said after Apple announced fourth-quarter results Monday. It also drew the attention of users looking to hack the device, he said. Many of the potentially unlocked iPhones were sold after Jobs dropped the price, Cook said.

AT&T has activated 1.1 million iPhones through yesterday for use on its network, the company said. It charges iPhone users $60 to $200 a month for wireless service.

Apple rose $11.80, or 6.8 percent, to a record $186.16 in Nasdaq Stock Market trading. The shares have more than doubled this year.

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