Apple 2.0

Apple iPhone's Deeper Problem

It's been nearly a week since Apple (AAPL) issued its controversial iPhone 1.1.1 firmware update, but the full repercussions are only now being felt.

At first, the loudest cries came from users who had unlocked their phones to work with other carriers and found that the devices had been rendered inoperable -- a loud but relatively small minority.

But Apple's deeper problem is that the update also disabled all native (i.e. unauthorized) third-party applications -- a development that will ultimately affect every iPhone user. Third-party applications are the secret sauce that have made every computer -- from the Apple II on -- infinitely more powerful than its designers imagined. Who besides a programmer on Apple's payroll is going to write software for the iPhone now?

The move was especially surprising because an Apple executive -- VP of hardware product marketing Greg Joswiak -- only a few weeks earlier had signaled in an interview with PC Magazine editors that the company wasn't hostile toward native iPhone apps. The money quote from the magazine's GearLog blog:

Rather, Apple takes a neutral stance - they're not going to stop anyone from writing apps, and they're not going to maliciously design software updates to break the native apps, but they're not going to care if their software updates accidentally break the native apps either. He very carefully left the door open to a further change in this policy, too, saying that Apple is always re-examining its perspective on these sorts of things. (link)

Not surprisingly, many developers saw that as a green light to start their business plans. One company, Mexens Technologies, maker of the popular Navizon software that triangulates your position and displays it on your cellphone, is now offering $25 refunds to anyone who bought the version it had just started selling for the iPhone.

Mexens execs might well wonder why Apple went out of its way to warn unlockers that last week's firmware update might wreck havoc with their hacks but didn't offer the same courtesy to the purveyors -- or users -- of third-party apps. It's also a mystery why, as the New York Times reported, Apple is treating some iPhone owners with third-party app problems with the same contemptuous no-help-from-us policy they are using for users who tried to break the iPhone's lock-in with AT&T (T).

Apple spokeswoman Jennifer Bowcock certainly won no friends for Apple when she told the Times' Katie Hafner:

"If the damage was due to use of an unauthorized software application, voiding their warranty, they should purchase a new iPhone." (link)

Little wonder that Nokia is going after Apple with its "phones should be open to anything" advertising campaign, or that Gizmodo changed its iPhone recommendation from "wait" to "don't buy," or that there is a movement afoot to punish Apple with a class-action lawsuit.

Below the fold, the devastating YouTube video, available here, that uses Apple's own "Think Different" soundtrack to memorialize the end -- perhaps permanent -- of the era of native third-party iPhone apps. As usual, Danny Lyons has the last word on that subject here, in The Secret Diary of Steve Jobs.

iPhone Update: The Good News

Almost lost in the cries of pain and dismay from users who "bricked" -- temporarily or permanently -- their iPhones by installing Apple's (AAPL) September update onto devices that had been unlocked, modified or activated on a Windows machine (see Techmeme this morning for the ugly details) is what the update does for the vast majority of users.

The summary of new features provided by the company includes several improvements people had been calling for from iDay one:

• iTunes Wi-Fi Music Store
• Louder speakerphone and receiver volume
• Home Button double-click shortcut to phone favorites or music controls
• Space bar double-tap shortcut to intelligently insert period and space
• Mail attachments are viewable in portrait and landscape
• Stocks and cities in Stocks and Weather can be re-ordered
• Apple Bluetooth Headset battery status in the Status Bar
• Support for TV Out
• Preference to turn off EDGE/GPRS when roaming internationally
• New Passcode lock time intervals
• Adjustable alert volume

Apple has provided a cheery video in which several of the new features are demonstrated by the same actor who did the original iPhone guided tour. Anybody with a nonfunctioning phone will probably find it too painful to watch.

As many commentators have noted, it's not as if Apple didn't warn users who had unlocked their iPhones that update 1.1.1 could render the devices inoperable. What it didn't tell its user community was that the update might also disable hundreds of third-party applications that independent programmers had written to make the device more useful.

Some of these problems may go away in the weeks ahead.  Jailbreak will probably get updated to allow third-party apps to be reinstalled. The creators of iPhoneSimFree and anySIM may figure out how to repair whatever damage they might have caused to iPhone's firmware.

Repairing relations with the fiercely loyal core of its user base may take Apple a little longer.

Apple iPhone a No-Show in Paris

Despite the confident predictions that Apple (AAPL) would announce something in Paris on Sept. 20 -- or Sept. 24, at the latest. Despite the 70,000 Parisians and other visitors expected this week at Apple's largest trade show in Europe. Despite the fact that France Télécom CEO Didier Lombard told a reporter in Hanoi last week that he and Apple had a deal (which led InformationWeek to run a headline that read Apple's iPhone is Launched In France, Via Vietnam.)

Despite all this, Steve Jobs is not at the 2007 Apple Expo in Paris and neither is the iPhone. And it now seems likely that the annual trade show, which opened on Tuesday and ends on Saturday, will come and go without a word from either Apple or Orange about their plans to roll out the iPhone in France. (Requests for comment from Apple have not yet been answered.)

"Could it be," writes Victoria Shannon in today's International Herald Tribune, "that there actually is no deal with Orange, which is owned by France Télécom?"

Shannon's piece explores several speculative theories -- including possible pique in Cupertino over passage last year of France's so-called iPod Law -- before settling on what is likely the real explanation:

It is probably that Apple and Orange simply have not yet come to terms on their business relationship over the iPhone. Maybe Orange is not willing to share as much revenue with Apple as O2 and T-Mobile are for the cachet of being the exclusive iPhone operator. (link)

Meanwhile, lacking an iPhone to pin it to, France's MacGeneration ended up bestowing its best-of-show award on the iPod Touch.

And although there were no iPhones on display at the big Apple booth that occupied center stage at the show, there were plenty to be seen on the floor of the Expo and on the boulevards of Paris, according to 9to5Mac:

If you come to Paris with an iPhone, don't expect anyone to be impressed.  Many have seen hundreds of them.  Every single one we've had the opportunity to inspect has been hacked. (link)

[Photo courtesy of 9to5Mac.]

Apple Expo in Paris: Where Are the iPhones?

Apple (AAPL) opened its 2007 Paris Expo yesterday, and although we're seeing photos from MacNN and 9to5Mac and hearing bits of news from Microsoft (MSFT) and Iomega (IOM), there is, surprisingly, no sign yet of an iPhone. This despite the fact that Didier Lombard, CEO of France Telecom, told Macworld's Jonny Evans last week that the carrier had already been tapped to be Apple's cellular presence in France.

Apple has not yet responded to requests for guidance. If you're at the show in Paris and hear any buzz about a French iPhone, please drop us a line.

[Photo courtesy of MacNN.]

Apple iPhone Unlock: Cat, Mouse, Brick

Coming on the heels of Steve Jobs' "cat-and-mouse" press conference, Apple's (AAPL) warning yesterday that its forthcoming software update could permanently disable unlocked iPhones represents a fork in the road.

On one side you have the users who dutifully signed on for a two-year stint with AT&T. They can update their iPhones with the official software upgrade due to be released later this week and receive the benefits of the latest Apple apps -- which according to several reports will include the ability to download songs and videos wirelessly through the iTunes Music store. They will also be eligible for any updates Apple releases in the future.

On the other you have all those people who either bought an unlocked iPhone from a commercial reseller or installed free iUnlock software from the open source iPhone Dev team. These users can't afford to update their iPhone without risking turning it into the proverbial brick. They are now dependent, perhaps permanently, on whoever modified their device to provide workarounds or restore it to its original, pristine state.

True to Jobs' cat and mouse analogy, the iPhoneDev group has already responded to Apple's announcement, challenging the company's assertions that they have somehow damaged the phones and promising a workaround in short order. Describing the code that tied the iPhone to AT&T as "bugs" and "problems," their statement reads in part:

The removal of those firmware problems, which were built in in favor for AT&T, does not cause "damage" as they want to make us believe.

We will provide you with a tool in the next week which will be able to recover your nck counter and seczones and even enables you to restore your phone to a Factory-like state.

In the meantime we advise you not to update your free iPhone with the upcoming firmware. Wait for the next version to be fixed to work properly with your carrier and not break your phone. (link)

Nobody knows for sure how many iPhone users are affected. Shaw Wu of American Technology Research described the number as "immaterial," representing "only a small group of users, namely hackers." The iPhoneDev group, based on the number of people who downloaded their software, puts it at "several hundred thousand" -- a figure Piper Jaffray's Gene Munster takes as a rough upper bound. "Even if the average hacker downloads the software twice, that's still over 100,000 hacked," he says. "The story is far from over."

For background, see "Steve Jobs Picks a Fight with iPhone Unlockers" 

Videos: Steve Jobs at the London iPhone Debut

Apple (AAPL) has not provided video of Steve Jobs' performance at the Sept. 18 "Mum is no longer the word" press conference in London, but there were plenty of cameras at the event and some of the footage has started to show up on YouTube. Below the fold:

1. Jobs answers a long, British-style 3-part question with an analogy about going on a few dates before getting married.

2. Jobs characterizes Apple's relationship with iPhone hackers as a game of cat and mouse.

3. Jobs answers the "why no G3?" question by describing the iPhone network as an EDGE and Wi-Fi sandwich.

The Price of an iPhone in Europe: $562 and Rising

In the U.S., the cost of an iPhone has fallen sharply since it was introduced nearly three months ago, from  $599 to $399, thanks to Apple's (AAPL) famous September price cut.

In Europe, the situation is reversed. The devices don't start shipping for more than a month, but iPhones there are already more expensive than they were just a few days ago -- thanks to the falling value of the dollar.

Steve Jobs had priced the phones high to start with, building in the 17.5% value-added tax (VAT), the cost of doing business overseas and a fudge factor to cover currency fluctuations. So far, those fluctuations have worked against the dollar, as the chart below suggests.

Bottom line: an iPhone in Europe today is 40% more expensive than the same phone in the U.S.

Steve Jobs Picks a Fight With iPhone Unlockers

Until yesterday, Apple (AAPL) had kept mum about attempts by various third-party programmers to free the iPhone from the binds that tie it to a particular carrier -- AT&T (T) in the U.S. and now O2 in the U.K. and T-Mobile in Germany. As recently as last week Apple responded to questions about the release of iUnlock with a terse "no comment."

But when asked a direct question at the "Mum is no longer the word" press conference in London yesterday, Steve Jobs couldn't remain silent -- especially in front of Matthew Key, CEO of O2 UK, which by all accounts has paid a pretty penny to be the iPhone's sole provider in Britain. Jobs responded to the question "Is unlocking a concern?" as follows:

"It's a constant cat and mouse game -- we have the same thing with the iPod with music." Steve looks at Matthew, "Are we the cat or mouse? We have to stay one step ahead of them." (quote from Engadget's live blog)

The analogy to music is a curious one, given that Jobs has argued forcefully against DRM (digital rights management) schemes that make it hard to copy digital music files -- despite the fact that Apple uses them in iTunes. This may explain his professed confusion about whether Apple is the cat or the mouse in this new game.

Should unlocked iPhones proliferate much beyond the hacker community, Apple would be less at risk than the cellphone carriers. Apple gets paid for its hardware in any event, whereas user fees are the carrier's main source of iPhone revenue.

Apple has not yet deployed its most powerful tool for combating unlock programs: firmware updates for the iPhone so far have disrupted some third-party apps, but haven't touched the unlock solutions. That will almost certainly change, and when it does the cat-and-mouse game Jobs describes will begin in earnest.

Meanwhile, as Gregg Keizer points out today in Computerworld, Apple and O2 have found other means of encouraging British customers to stick with authorized iPhone dealers and carriers. The flat-rate plans (with unlimited data transfers) that O2 announced yesterday are a pretty sweet deal in the Europe smartphone market, where pay-as-you-go is the norm. An even better sweetener may be the free account British iPhone customers will get with The Cloud, which has blanketed London's financial district with Wi-Fi and boasts some 7,500 hot spots in Great Britain and Ireland.

Given that only 30% of the U.K. is covered by O2's EDGE network, iPhone access to those hotspots could turn out to be key.

[Photo courtesy of Shaun Curry/AFP/Getty Images via the New York Times]

T-Mobile Wins German iPhone Contract: Nov. 9 for $553

At a press conference in Berlin today, Steve Jobs announced that Deutsche Telekom AG's T-Mobile division will carry Apple's (AAPL) iPhone in Germany. The device will be go on sale on Nov. 9 for €399 ($553) and will offer access to T-Mobile's 8,600 Wi-Fi hotspots in Germany.

You can read the official press release here.

Apple's iPhone Coming to the U.K. (UPDATE)

UPDATE: Britain's Carphone Warehouse, which had just won the coveted right to sell the iPhone in the U.K., is up sharply in midday trading on news that U.S. electronics retailing giant Best Buy (BBY) has purchased a 3% stake in the company. See here.

Meanwhile, Piper Jaffray analyst Gene Munster estimates that U.K. sales of iPhones will add 78,750 units to his previous projection of 2 million iPhone sold worldwide in the upcoming Christmas quarter. See iPhone in Britain: 3 weeks early, 34% more expensive.

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With about 100 journalists assembled at Apple's (AAPL) big Regent Street store in London -- and after tea and cakes had been served -- Steve Jobs  announced the terms under which the iPhone will be sold in the U.K., the first country outside the U.S. to get the device.

The 8 GB model running on the EDGE network (not 3G) goes on sale Nov. 9 for £269 ($537), including VAT, and will be carried by O2. "We picked the best one, the most popular carrier," Jobs said, according to Thomas Ricker, who covered the event live for Engadget.

"I've seen hundreds of devices every year, and within a few minutes of playing with the iPhone I knew it as a breakthrough product," said O2 UK CEO Matthew Key. According to a report in The Guardian yesterday, O2 may be paying Apple a kickback of as much as 40% of its iPhone revenue for the privilege of carrying the phone. Jobs declined to discuss the terms of its revenue-sharing plan.

O2, which will be partnering with Carphone Warehouse to sell the iPhone, is offering three 18-month plans -- £35 ($70), £45 ($90) and £55 ($110) a month -- each with nearly unlimited data (although there is a limit of 1,400 Internet pages per day).

In the Q&A, Jobs defended the decision to use the slower EDGE network and Wi-Fi Internet access where available rather than the 3G networks that are widely deployed in the U.K. and Europe. "The 3G chipsets are real power hogs" that cut into battery life, he said, repeating the rational he used in the U.S. But he held out the hope that 3G iPhones could arrive in 2008. "3G needs to get back up to 5+ hours, something we think well see later next year," he said.

Key said O2 has been building out its EDGE network and now covers 30% of the U.K. He added that Wi-Fi access for the iPhone will be provided at some 7,500 hotspots by The Cloud, which bills itself as Europe's leading wireless broadband network.

Based on earlier reports, it is expected that Orange will be providing iPhone service in France and T-Mobile in Germany, Austria, the Netherlands, Hungary and Croatia. (See Apple's iPhone Heads for Europe and European iPhone Update.)

[Thanks to Engadget's Thomas Ricker for the on-scene reporting.]

[Photo courtesy of netdog via MacRumors]

iPhone in Britain: 3 Weeks Early, 34% More Expensive

The iPhone is coming to the U.K. earlier than expected and at a higher price point, which analysts say could give Apple's (AAPL) bottom line a nice bump. (For details on Steve Jobs' London press conference, see Apple's iPhone Coming to U.K. Nov. 9 for $537.)

"The UK launch ... is essentially three weeks ahead of our expectations," writes Piper Jaffray's Gene Munster, who as a result has raised his iPhone unit sales assumptions for the December quarter by 4%.

Munster estimates that O2, the carrier Apple has chosen to partner with in the U.K., has about 18 million subscribers, compared with AT&T's approximately 64 million. Given his previous estimate that Apple is selling 13,500 iPhones a day in the U.S., Munster projects daily sales of 3,750 iPhones in the U.K., or an additional 78,750 iPhones for the quarter. That's over and above the 2 million iPhone sales for the quarter that he had projected before today's announcement.

Munster was also surprised by the £269 ($537) price point. "It's more expensive" than he anticipated, he told Apple 2.0. "Typically Apple products [in the U.K.] are 25-30% over the U.S. price, and the iPhone is 34% [more].

For Apple's official London press announcement, click here.

Apple's iPhone Coming to the U.K. Nov. 9 for $537

With about 100 journalists assembled at Apple's (AAPL) big Regent Street store in London -- and after tea and cakes had been served -- Steve Jobs  announced the terms under which the iPhone will be sold in the U.K., the first country outside the U.S. to get the device.

The 8 GB model running on the EDGE network (not 3G) goes on sale Nov. 9 for £269 ($537), including VAT, and will be carried by O2. "We picked the best one, the most popular carrier," Jobs said, according to Thomas Ricker, who covered the event live for Engadget.

"I've seen hundreds of devices every year, and within a few minutes of playing with the iPhone I knew it as a breakthrough product," said O2 UK CEO Matthew Key. According to a report in The Guardian yesterday, O2 may be paying Apple a kickback of as much as 40% of its iPhone revenue for the privilege of carrying the phone. Jobs declined to discuss the terms of its revenue-sharing plan.

O2, which will be partnering with Carphone Warehouse to sell the iPhone, is offering three 18-month plans -- £35 ($70), £45 ($90) and £55 ($110) a month -- each with nearly unlimited data (although there is a limit of 1,400 Internet pages per day).

In the Q&A, Jobs defended the decision to use the slower EDGE network and Wi-Fi Internet access where available rather than the 3G networks that are widely deployed in the U.K. and Europe. "The 3G chipsets are real power hogs" that cut into battery life, he said, repeating the rational he used in the U.S. But he held out the hope that 3G iPhones could arrive in 2008. "3G needs to get back up to 5+ hours, something we think well see later next year," he said.

Key said O2 has been building out its EDGE network and now covers 30% of the U.K. He added that Wi-Fi access for the iPhone will be provided at some 7,500 hotspots by The Cloud, which bills itself as Europe's leading wireless broadband network.

Based on earlier reports, it is expected that Orange will be providing iPhone service in France and T-Mobile in Germany, Austria, the Netherlands, Hungary and Croatia. (See Apple's iPhone Heads for Europe and European iPhone Update.)

[Thanks to Engadget's Thomas Ricker for the on-scene reporting.]

[Photo courtesy of netdog via MacRumors]

European iPhone Update: 02's "Mad" Terms, T-Mobile's Expanded Empire

With an Apple (AAPL) press conference set for 10 a.m. London-time tomorrow (see Apple's iPhone Heads for Europe), new details are emerging about the  company's plans for rolling out the iPhone across the pond.

The most intriguing revelations come from Richard Wray in The Guardian, who tells the story in this morning's paper about how Steve Jobs played the four major European network operators against each other -- signing contracts for the U.K. market with three of them and even dispatching Apple technicians to help configure their networks to work with the iPhone -- only to extract terms from O2 at the last minute that one source describes as "madly money-losing." Money-losing for O2, that is, not for Apple. According to Wray, O2 is sharing its retail sales business with the Carphone chain and kicking as much as 40% of its iPhone revenue back to Cupertino, an arrangement he says is raising eyebrows in The City (London's version of Wall Street).

Meanwhile, Financial Times Deutschland, sister paper of London's FT, reports that T-Mobile is holding a press conference on Wednesday to announce that it has secured the rights to sell the iPhone not just in Germany, but in Austria, the Netherlands, Hungary and Croatia as well. The terms of this deal are said to be less onerous and more in line with the 10% revenue sharing model mentioned in earlier reports.

Finally, TechCrunch France reports that Apple and Orange will wait until next Tuesday -- the day before the opening of the big Apple Expo in Paris -- to announce the terms of their deal (contradicting The Observer, which had the Orange press conference set for Thursday). According to TechCrunch France, which ran a blurry photo of a French-language iPhone screen, the device will be available in France on Nov. 29 and sell for 300 euros ($416) without 3G service or an unlimited data plan. (See here for the English-language version.)

Apple's iPhone Heads for Europe

With Apple's (AAPL) self-imposed deadline of Sept. 30 rapidly approaching and a mysterious press event scheduled for Tuesday Sept. 18 in London, the rumor sites have fallen into line and concluded that Steve Jobs is finally set to unveil his plans for rolling out the iPhone across the pond, as CFO Peter Oppenheimer promised last July.

For the phones themselves, Europeans will have to wait a little longer -- probably until November.

Much of what Apple will announce in the next two weeks is hardly a secret anymore. FT Deutschland reported in August that the company had signed contracts with three European cellular network operators -- T-Mobile in Germany, Orange in France and O2 in the UK -- that included a 10% kickback to Apple on revenue collected from iPhone calls and data transfers.

Since then reports have surfaced almost daily to flesh out the details, including the image at left that purports to be an ad for a 16 GB German iPhone priced at 499 euros ($692). The ad may well be a fake, but the price corresponds with the most authoritative rumor to date, Reuters' report on Friday that Deutsche Telekom's T-Mobile unit will sell the iPhone in Germany for an initial price of 399 euros ($554). Presumably that's the price for an 8GB model.

Although Reuters' source predicted that the T-Mobile deal would be announced this coming week, Apple has not yet issued press invitations in Germany. The event in London -- cryptically entitled "Mum is no longer the word" --  is to be held at 10 a.m. local time at the Apple store on Regent Street, a surprisingly modest venue for what most observers expect will be the O2 announcement. The Apple Expo in Paris, which runs from September 25 to 29, would seem a more propitious time for Steve Jobs to share his iPhones plans for Continental Europe.

The only suspense left may be when the phones start shipping and whether they will sell. Peter Oppenheimer in July said only that Apple was on track to start shipping iPhones to Europe before the end of the year, which hasn't stopped the rumor sites from putting their chips on earlier dates. On Friday Think Secret cited "fresh information" suggesting that the phone would arrive in the U.K. during the week of November 12, in France "around November 29" and in Germany "some time in November."

If the German advertisement is to be believed, Europeans could see 16 GB iPhones before Americans do. Early speculation that the new devices would run on Europe's 3G networks has largely been dismissed, leading some analysts to suggest that a 2.5G iPhone might be received by cellphone sophisticates on the Continent with a yawn. But the eagerness with which Apple enthusiasts abroad have been snapping up iUnlock and other programs that free the phone to work in Europe suggest that there might be quite a bit of pent-up demand.

A Second (Graphical) Look at Apple's July iPhone Sales

Carl Howe at Blackfriar's Marketing has put together a Quicktime movie that sheds an interesting light on Apple's (AAPL) million iPhone mark. He was responding to commentary in the press and blogosphere -- in particular Dan Frommer's  Apple's iPhone 1 Million Is Below Plan in Silicon Alley Insider -- suggesting that it reflected weak demand. One of the points Howe makes in rebuttal was that the iPhone was hard to find for 21 of the 74 days it took Apple to sell those 1 million units, and he supports that assertion with this cool little clip:

Click on the above image for a movie of iPhone availability for the month of July; Quicktime required

Howe goes on to write a couple graphs that shiv Apple skeptics so deftly that I quote them in full below the fold:

iUnlock: First Free iPhone Unlock Released

The ties that bind the Apple (AAPL) iPhone to AT&T (T) are being broken in droves today following the release of iUnlock, the first open-source procedure that frees the device to work on other wireless networks.

"If you're like us, you're furiously unlocking every iPhone in sight," writes Paul Miller at Engadget. The code, which was developed by an anonymous group that calls itself the  iPhone Dev Team, is available in zip files at Gizmodo here.

For iPhone owners in the U.S., this means that their phones will work with SIM cards from T-Mobile, which uses the same GSM protocol. It has even greater significance overseas, where GSM is standard. With iUnlock, the iPhone can be used in much of Europe and the Far East.

The release of the procedure comes 74 days after the iPhone went on sale and one day after the first commercial unlock solution became available. It was only Monday that iPhoneSimFree finally started shipping their $99 product to iPhone resellers.

As it happens, it was the release of iPhoneSimFree that gave the open-source team the clues they needed to come up with what they claim is a similar but independently developed procedure. You can read here Paul Miller's account of how programmers with names like Zappaz, Hexxat and GeoHot, working through the night and communicating on IRC channels, raced to crack the code. 

The iUnlock procedure is not for the faint of heart. Documentation is scant and there a real risk that a misstep will "brick" your iPhone. Moreover, it's known that several nice iPhone features, including visual voicemail and Apple's version of YouTube, don't work on unlocked phones.

Apple today had no comment on the news. Earlier this week, hardware marketing chief Greg Joswiak told editors from PC Magazine that the company was taking a "neutral stance" toward third-party iPhone applications, although he might feel differently about this hack.

AT&T's legal department is more likely to take a hard line, since this threatens their main source of iPhone revenue. But the legal situation here is murky. The exemption to the Digital Millennium Copyright Act that allows individuals to unlock their own phones may not protect companies that sell the same service to others. But iUnlock is free. And if AT&T's lawyers did try to take someone to court, they might have a hard time getting their hands on Zappaz, Hexxat and GeoHot.

Report: Price Cut Bumped iPhone Sales Three-Fold

Piper Jaffray's Gene Munster, whose 50-hour survey of Apple (AAPL) stores produced the most definitive estimate of iPhone sales to date, has combined his data with yesterday's report that Apple sold its 1 millionth iPhone on Sunday to calculate the effect of last week's 33% price cut.

By Munster's reckoning, Apple and AT&T (T) were selling an average of 9,000 iPhones a day before the price reduction, which would have put their quarterly sales at 594,000 as of Sept. 5. The two companies had already sold 270,000 phones in the previous quarter. To reach 1 million by Sept. 9, they would have had to sell 136,000 more phones, or 27,000 a day -- a 300200% increase.

The new rate, Munster writes in a report to clients issued yesterday, "clearly represents an initial surge that is not sustainable." He estimates that sales will stabilize at a 50% increase.

By the end of the quarter, he believes, Apple will have sold a total 1.28 million iPhones.

1 Million iPhones: Why Today?

When Steve Jobs said last Wednesday that Apple (AAPL) was on track to sell 1 million iPhones by the end of Apple's fourth quarter, 25 days away, he probably had a pretty good idea how many units the company had already sold. But he waited until today to announce some big news on that front.

"One million iPhones in 74 days -- it took almost two years to achieve this milestone with iPod," said Steve Jobs, Apple's CEO. "We can't wait to get this revolutionary product into the hands of even more customers this holiday season." (link)

Hmm.

Color me cynical. It's possible that the price cut Jobs sprang on us on Wednesday boosted sales just enough in the four days afterward to put the iPhone over the 1 million mark on Sunday.

It's also possible that the timing of today's announcement was a decision driven less by sales figures than by public relations. Why bury a piece of news like this in an event crafted to spotlight the new iPod line when you can save it for just before the stock market opens in New York on Monday, when it will make a much bigger splash.

Steve Jobs' $100 iPhone Credit: No Good Deed Goes Unpunished

Once he started reading his e-mail from angry customers who paid full price for an iPhone, it didn't take Steve Jobs long to decide that his initial Econ 101 response to critics of the precipitous price cut -- “Well, that’s what happens in technology” -- was a PR disaster for Apple (AAPL), which has survived through many lean years on the strength of an extraordinarily loyal and devoted user base.

And while his offer of $100 store credit to the "early customers [who] trusted us" was generally well received ("a very (very) nice gesture," wrote iPhone Matters), it also didn't take long for Jobs to learn once again the truth of Oscar Wilde's maxim (or was it Clare Boothe Luce?) about good deeds and their consequences.

Wall Street, which had lopped $5.5 billion off Apple's market cap the day before on news of the price cut, saw the $100 as a second hit to the bottom line and shaved off another $1.5 billion. It's punishing the stock even more severely this morning, despite the advice from American Technology Research's Shaw Wu that the financial effect on AAPL is "immaterial."

Market researcher Rob Enderle saw the $100 gesture as adding insult to injury. "It’s a way to make you go buy something else, and gives the company a chance to make more money," he told the New York Times. "People might still feel like they were screwed."

"With Apple's lofty profit margins,"  Valleywag gossip Owen Thomas calculated in a post entitled Surly Adopter, "a $100 retail credit will probably cost you $50 or so wholesale."

Gizmodo's Jason Chen considered the choices and reported that $100 doesn't go a long way in Appleland. "It can get you a keyboard and 3/5 of a mouse. It can you get an iPod Shuffle and almost an entire set of spare headphones. It will buy you 5/6 of a Bluetooth headset."

Most people, he concluded, will use this $100 on something more expensive, like a new computer. "Either way," he writes, "the money's going back to Apple."

Chen even went so far as to offer readers a strategy for gaming Jobs' gift:

For those of you who bought the iPhone on a credit card with price protection, $200 in cash is better than $100 in store credit. And if you're really sneaky, maybe you can get both. Don't tell them we said anything. (link)

Robert X. Cringely thinks the whole episode was carefully planned in advance -- including the $100 rebate:

So Steve slapped his customers around a bit and what happened? Apple got free publicity worth tens of millions and the iPhone, which was already the top-selling smartphone in the world, will now sell two million units by the end of the year, up from an estimated one million. And Steve, having deliberately alienated his best customers, now gets a chance to woo them back. He has finally placed millions of people in the role of every key Apple employee — being alternately seduced and tormented. (link)

"Apple right now is like the girl I really tried to fall in love with but woke up one morning and called it off," writes Fred Wilson in A VC, who says the whole experience is driving him back into the arms of Microsoft.

Good luck with that.

For background, see

• The iPhone Rebellion
• iPhone Price Cut: 10 Reasons Why Apple Did It

[T-shirt by Error Gorilla; photo courtesy of  Fake Steve Jobs]

The iPhone Rebellion (UPDATE)

UPDATE: Apparently Steve Jobs got the message. He's posted an apology on the Apple website and is offering $100 store credit to iPhone owners who paid full price. See here.

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Steve Jobs' casual announcement today that Apple (AAPL) was cutting the price of the 8GB iPhone by $200 is not going over well among customers who paid $599 for theirs. In fact, it has sparked an outright rebellion in the Apple support forums, where discussion threads filled with hate mail are piling up faster than Apple can delete them.

"The more the day goes by, the more furious I become," writes VSiskos in "1 Million People Slapped In The Face Today," one of the forums still standing.

"I CANNOT BELIEVE THIS!" adds graphicalliber425. " Somewhere in my heart I'm hoping, Apple's going to offer all of us an extended return policy, or a brand new iPod nano right?"

Under's Apple's standard return policy, customers who bought a product within 14 days of a price reduction can ask to be reimbursed the difference, and some Apple stores have reportedly done the same for iPhones purchased earlier than that. But those random acts of flexibility seem only to have further inflamed the wounded feelings of those who weren't extended the same courtesy.

"They told me to shove it," wrote tulanejosjh. "14 days or nothing."

"Same here," added  jmolina1313. "The guy treated me like I was on drugs!"

Many customers reported being treated rudely, which is not something you often hear about Apple employees and quite a contrast to the scene in the same stores two months ago.

"The last time I walked into an Apple Store there were lines of employees clapping and giving high fives to congratulate us on the wise decision to buy an iPhone," wrote ck2875. "I wonder if going back for this would be similar?"

Meanwhile, Apple is selling off its remaining stock of 4 GB iPhones for $299 each.

iPhone Price Cut: 10 Reasons Why Apple Did It

Yesterday's iPhone price cut -- from $599 to $399, 68 days after product launch -- came sooner and was deeper than anyone expected. Why did Steve Jobs do it?

"We want to make iPhone even more affordable for even more people," was the reason he gave. "We want to put iPhones in a lot of stockings this holiday season."

But is that the whole story? Apple (AAPL) watchers have been pondering the question overnight and have come up with at least 10 other possibilities. Cutting and pasting from various websites, we offer them here:

1. Sales are slowing, and a price drop will re-invigorate them.
2. Other smartphones are entering the market and a $399 price tag kicks those where it hurts.
3. iPhone is a classic platinum turkey -- a high-end phone that sells a million units rapidly but then quickly loses momentum.
4. The new iPod touch was likely to undermine iPhone sales.
5. Apple early adopters would have paid any price. $600 was just short term profit maximization for the launch.
6. Apple has reached a milestone that can justify a price cut. Development costs have been recouped. (It'll be a lot cheaper to produce the next million iPhones than the first, so Apple hasn't given away its margin.)
7. iPod Touch and iPhone share certain parts, thus bringing manufacturing costs down for both products.
8. Apple promised AT&T the price cut if they could offer the iPod touch this holiday season.
9. If Apple learned anything from the Mac war with Wintel, it was that maintaining hardware margins at the expense of marketshare was a mistake.
10. Clearing out inventory to make way for a 3G iPhone ASAP.

For the reaction of some early adopters who paid full price, see "The iPhone Rebellion."

The iPhone Rebellion

Steve Jobs' casual announcement today that Apple (AAPL) was cutting the price of the 8GB iPhone by $200 is not going over well among customers who paid $599 for theirs. In fact, it has sparked an outright rebellion in the Apple support forums, where discussion threads filled with hate mail are piling up faster than Apple can delete them.

"The more the day goes by, the more furious I become," writes VSiskos in "1 Million People Slapped In The Face Today," one of the forums still standing.

"I CANNOT BELIEVE THIS!" adds graphicalliber425. " Somewhere in my heart I'm hoping, Apple's going to offer all of us an extended return policy, or a brand new iPod nano right?"

Under's Apple's standard return policy, customers who bought a product within 14 days of a price reduction can ask to be reimbursed the difference, and some Apple stores have reportedly done the same for iPhones purchased earlier than that. But those random acts of flexibility seem only to have further inflamed the wounded feelings of those who weren't extended the same courtesy.

"They told me to shove it," wrote tulanejosjh. "14 days or nothing."

"Same here," added  jmolina1313. "The guy treated me like I was on drugs!"

Many customers reported being treated rudely, which is not something you often hear about Apple employees and quite a contrast to the scene in the same stores two months ago.

"The last time I walked into an Apple Store there were lines of employees clapping and giving high fives to congradulate us on the wise decision to buy an iPhone," wrote ck2875. "I wonder if going back for this would be similar?"

Some AT&T stores, which also sell iPhones, are reported to have a 30-day money back return policy (minus a 10% restocking fee). Customers who bought the now discontinued 4 GB model from AT&T for $499 within the last month could theoretically trade it in for a 8 GB model and still come out $50 ahead. Meanwhile, Apple is selling off its remaining stock of 4 GB iPhones for $299 each.

Apple Event: New iPods, iPhone Price Cut, No Beatles

In a move timed to prepare customers for the 2007 holiday buying season, Steve Jobs today refreshed Apple’s (AAPL) entire line of iPod music and video players, from the tiny $79 shuffle to a new wide-screen iPod Touch -- an Internet-ready device that is basically an iPhone but without the phone. "It's one of the seven wonders of the world, it's just incredible," Jobs told a crowd of about 1,000 analysts, journalists and bloggers gathered at San Francisco’s Moscone Center.

But he waited until the end of the program to announce a sharp price cut in the much-hyped iPhone, one that suggests that sales of the device may not be going as well as he hoped.

The event capped a week of anticipation and frenzied speculation, and although many of the rumors proved true -- including spy photos of the so-called iPod "fatty" that Apple's legal department ordered removed from several websites -- the one many music fans cared most about did not: Paul McCartney did not appear live from the BBC and the Beatles are not yet available for download on Apple's iTunes Music Store.

The new version of the iPod nano, Apple’s most popular model, sports a wider screen that can browse through album covers, play games and show movies and TV episodes downloaded from iTunes. A 4GB nano costs $149, the 8GB version is $199.

The new standard iPod – renamed the iPod Classic --  is thinner and packs twice as much flash for the buck as its predecessors, enough to hold up to 40,000 songs. The 80 GB model costs $249; the 160 GB is $349.

The iPod Touch, like the iPhone, has a 3.5 inch screen designed for fingertip control. Although it can’t make phone calls, it is equipped with Wi-Fi, which means users can wirelessly surf the Internet, download YouTube videos, and buy songs directly from Apple or from selected Starbucks coffee shops. There are two models: 8 GB for $299 and 16 GB for $399. They will ship later this month.

The dramatic price cut on the 8 GB iPhone, from $599 to $399  -- and apparent (but not yet official) discontinuation of the less popular 4 GB model -- took most observers by surprise. The price reduction looks a lot like a last-ditch effort to boost sales, which Jobs claims are still on track to hit 1 million units before the end of September. Many analysts had predicted that Apple would have reached that goal before now.

Om Malik points out that according to Apple's return policy, customers who paid $599 for an 8 GB model within the past 14 days can can request to be reimbursed for the difference.

With reporting by John Fortt, who live-blogged the event at The Utility Belt.

[Photo Courtesy of Engadget]

All Eyes on Apple Today

Eight days of anticipation and frenzied speculation come to a head today. At Apple's (AAPL) invitation, thousands of  technology analysts and press will gather in San Francisco's Moscone Center for an event about which the company has said only four words: "The beat goes on."

What does Steve Jobs have up his sleeve this time? Nobody outside Apple knows for sure, of course, but that hasn't stopped -- and may have only encouraged -- Apple watchers from trying to guess. Over the past week, the rumor sites have settled into something that resembles a consensus opinion. They're expecting:

A new generation of iPods: It's been nearly two years since the line was refreshed and it's badly in need of an overhaul; sales have been drifting south since last Christmas and profit margins are shrinking. Most Apple watchers expect three new products:

• A wide-screen, touch-sensitive iPod that looks like the iPhone and runs a miniature version of OS X. Some reports say it will be Wi-Fi enabled to download music and video wirelessly; most expect it to have a hard drive rather than flash memory to hold down costs.
• A new iPod nano with a larger screen, a clickwheel and a "CoverFlow" interface like the iPhone. Based on spy photos that have been floating around for weeks, this squat iPod has already acquired several nicknames, among them the bilbo, the fatty (or phatty), and the Danny DeVito of iPods.
• A (PRODUCT) RED iPod Shuffle with more memory for the same price; reports that Apple will discontinue this popular line of iPods have mostly been dismissed.
  

An iPhone update: Jobs has said he expects to sell 1 million iPhones by the end of September, and if he has reached that goal early you can be sure he will let us know tomorrow. (iSuppli reported yesterday that the iPhone outsold all other smartphones in July.) Rumors that Apple has signed three European cell phone providers to carry the device overseas have been knocking around for several weeks, waiting for Apple to make them official; that could happen today. Apple is also widely reported to be working on a lower-cost iPhone nano. A few rumor sites suggest it could be unveiled tomorrow, but that is not the consensus opinion.

iTunes news: The image above, which accompanied the press invitation, looks like something out of Apple's iTunes Music (and Video) Store, and there has been no shortage of speculation about what changes might be coming there.

• Everybody expects Apple to announce downloadable ringtones for the iPhone, something that should have been available from day 1.
• More speculatively, some expect Apple to announce a wireless iTunes store that would permit iPhones (and, if they exist, wireless iPods) to download music and video without going through a computer; there's even talk of a digital radio service that would allow users to buy and download songs as they hear them broadcast.
• The Beatles. The easy consensus is that it's got to happen sometime. The minority opinion is that today is the day the beat goes online, perhaps with a live performance by Paul McCartney.

Tune in at 10 a.m. (1 p.m. ET) for live blogging from Jon Fortt at The Utility Belt and instant analysis here at Apple 2.0.

                        

What does Steve Jobs have up his sleeve this time? Nobody outside Apple knows for sure, of course, but that hasn't stopped -- and may have only encouraged -- Apple watchers from trying to guess. Over the past week, the rumor sites have settled into something that resembles a consensus opinion. They're expecting:

A new generation of iPods: It's been nearly two years since the line was refreshed and it's badly in need of an overhaul; sales have been drifting south since last Christmas and profit margins are shrinking. Most Apple watchers expect three new products:

• A wide-screen, touch-sensitive iPod that looks like the iPhone and runs a miniature version of OS X. Some reports say it will be Wi-Fi enabled to download music and video wirelessly; most expect it to have a hard drive rather than flash memory to hold down costs.
• A new iPod nano with a larger screen, a clickwheel and a "CoverFlow" interface like the iPhone. Based on spy photos that have been floating around for weeks, this squat iPod has already acquired several nicknames, among them the bilbo, the fatty (or phatty), and the Danny DeVito of iPods.
• A (PRODUCT) RED iPod Shuffle with more memory for the same price; reports that Apple will discontinue this popular line of iPods have mostly been dismissed.
  

An iPhone update: Jobs has said he expects to sell 1 million iPhones by the end of September, and if he has reached that goal early you can be sure he will let us know tomorrow. (iSuppli reported yesterday that the iPhone outsold all other smartphones in July.) Rumors that Apple has signed three European cell phone providers to carry the device overseas have been knocking around for several weeks, waiting for Apple to make them official; that could happen today. Apple is also widely reported to be working on a lower-cost iPhone nano. A few rumor sites suggest it could be unveiled tomorrow, but that is not the consensus opinion.

iTunes news: The image above, which accompanied the press invitation, looks like something out of Apple's iTunes Music (and Video) Store, and there has been no shortage of speculation about what changes might be coming there.

• Everybody expects Apple to announce downloadable ringtones for the iPhone, something that should have been available from day 1.
• More speculatively, some expect Apple to announce a wireless iTunes store that would permit iPhones (and, if they exist, wireless iPods) to download music and video without going through a computer; there's even talk of a digital radio service that would allow users to buy and download songs as they hear them broadcast.
• The Beatles. The easy consensus is that it's got to happen sometime. The minority opinion is that today is the day the beat goes online, perhaps with a live performance by Paul McCartney.

Tune in at 10 a.m. (1 p.m. ET) for live blogging from Jon Fortt at The Utility Belt and instant analysis here at Apple 2.0.

                        

All Eyes on Steve Jobs Tomorrow

Apple (AAPL) watchers find themselves caught up once again in a well-orchestrated frenzy of anticipation. Press and analysts have been invited to an event that starts tomorrow at 10 a.m. PT, about which Apple has said only four words: "The beat goes on." The invitations were e-mailed a week ago, and we've spent the last seven days trying to second-guess what Steve Jobs has up his sleeve.

Nobody outside Apple knows for sure, of course, but the rumor sites have settled into something that resembles a consensus opinion.

Unlocked iPhones Go On Sale Tomorrow

The first independently verified product that allows Apple (AAPL) iPhones to run on networks other than AT&T's (T) is scheduled to go on sale today -- but not to existing iPhone customers.

The pricing and terms of sale were made public in an e-mail from iPhoneSimFree.com that was sent to registered bulk buyers on Sunday and published that evening by Engadget. Sales start at $1,800 for 50 licenses; 5,000 can be had for $125,000. A redacted version of the e-mail is pasted below the fold.

The plan is for the software is to be distributed only by iPhone resellers -- companies that buy the cell phones from Apple, modify them before they have been activated with AT&T, and then sell them to customers who want to use the iPhone on GSM networks overseas or on another GSM network in the U.S. (e.g. T-Mobile). Prices for the modified cell phones have not been set.

People who are already using iPhones on AT&T's network could, in theory, pay to have their phones unlocked, but they would still be obligated to AT&T for the rest their 2-year contract.

This distribution strategy was devised with advice of lawyers and seems designed to avoid -- or at least off-load -- the legal problems associated with unlocking a cellphone for money.

An exemption to the Digital Millennium Copyright Act allows individuals to unlock their own phones, but does not necessarily protect companies that sell the same service to others.

iPhoneSimFree has arranged things so that it won't be unlocking any iPhones directly; that transaction is carried out by the reseller, who would presumably take on any legal risk. Resellers will also have to deal with customers should future iPhone software updates from Apple interfere with the modified phones.

iPhoneSimFree.com is the registered website of a core group of six anonymous software developers who broke the codes that locked the iPhone to AT&T's network. In demonstrations to Engadget and CNN, iPhones modified with iPhoneSimFree's software seemed to have all their functions intact except for Visual Voicemail and Apple's streamlined version of YouTube.

iPhoneSimFree's e-mail is pasted below, courtesy of Engadget.

More Apple Speculation: Wi-Fi iPods and High-Def Apple TV

The Apple (AAPL) event set for a week from today has unleashed a torrent of speculation, including two particularly enticing rumors that surfaced overnight.

Wi-Fi Music: MacDailyNews and 9to5Mac both posted brief reports suggesting that Steve Jobs next Wednesday might introduce new iPods that could download music and other content over the airwaves. MacDailyNews  framed their tip like this:

Apple will debut "wireless-capable iPods" next Wednesday along with "wireless iTunes Store sales," enabling users to buy content "directly from iPod, iPhone," a single source often familiar with Apple's digital content plans tells MacDailyNews.... This is a rumor. We have no other information. We cannot confirm this information independently at this time, but felt it plausible enough to bring to your attention. (link)

"I think it would be a bold and killer move by Apple to go with a wifi iPod and begin direct to iPhone and iPod music sales," writes one Apple watcher on The Mac Observer's Apple Finance Board. "I would be surprised and impressed by how aggressive that move would be."

High-Definition Video: Carl Howe at Blackfriar's Marketing puts the timing of the Sept. 5 Apple event together with an Aug. 27 press release from Akamai (AKAM) and gets this:

What has gone more or less unnoticed is the fact that Akamai, Apple's long-time Internet content partner, has announced that it is adding high-definition video to its Internet distribution offerings.

A coincidence? Perhaps. But add the fact that Apple TV, a product whose revenue is being recognized as a 24-month subscription model like the iPhone, sports high-definition outputs, yet has no high-definition iTunes content yet, and you've got a high-definition shoe ready to drop sometime; the only question is when. (link)

Two curious lines of speculation with nothing much more than wishful thinking behind them. They may not have much predictive power, but they are strong indicators of the direction Apple's users and investors would like to see the company going.

Third iPhone Unlock Video Released

The folks at UniquePhones have had a credibility problem since they first claimed to have partially unlocked 4,000 Apple (AAPL) iPhone back on July 1, two days after the device went on sale. Although nearly half a million people registered on their site, iphoneunlocking.com, to be alerted when the procedure was available for download or sale, weeks went by without any word. Many suspected that the whole thing might have been a trap set up to capture e-mail addresses.

What happened last week didn't help. A couple days after George Hotz posted his software-and-solder iPhone unlocking procedure on the Web -- with accompanying video -- and one day after iPhoneSIMfree.com posted a second video demonstrating its software-only solution, UniquePhones founder John McClaughlin announced that his company had also developed a downloadable iPhone unlock and was set to release it for sale the very next day.

But when the appointed hour arrived, McClaughlin instead posted a note saying he was prevented from making his software available because of a mysterious -- and threatening -- early morning phone call from a lawyer claiming to represent AT&T whose name McClaughlin was too sleepy to write down. See iPhone Unlock Hits Legal Hang-Up.

"All this leads me to believe that the Web site was a scam," wrote a skeptical Jason D. O'Grady at ZDNet's The Apple Core on Monday. "Did they ever really have a software unlocking solution?"

So McClaughlin may be forgiven if he felt obliged to post proof in the form of the YouTube video pasted below that purports to show a modified iPhone making a local and international call from Belfast on a Vodafone SIM card.

The 55,000 views it had already drawn by this afternoon suggests the level of interest his claim has generated. Judging from the tenor of the 60 comments so far, the quality of the video -- it was apparently shot on a cellphone with focus problems -- has left many of the skeptics unsatisfied. The images are so blurry, as one viewer points out, that you can't even read the name of the cellphone provider the iPhone is using. Advice to McClaughlin: if you want to make a business of this, spring for a videographer.

Below the fold: the YouTube video...   

Third iPhone Class Action Suit Filed

AppleInsider reports today that a third iPhone class-action lawsuit has been filed against Apple (AAPL). This one claims that the company failed to disclose that the device was locked to AT&T's wireless network and that using it outside the U.S. could result in substantial roaming charges.

The complainant is a New York state resident named Herbert H. Kliegerman who, according to AppleInsider, tells this story:

Approximately two weeks after purchasing his iPhone, Kliegerman traveled to Mexico for a week where he continued to use his iPhone to check emails and surf the web. He did so, according to the suit, after reading a statement on Apple's iPhone website stating that "[y]ou can browse the Internet and send emails as often as you like without being charged extra."

Upon returning from Mexico, Kliegerman claims to have received a bill from AT&T with $2,000 in international data roaming charges. Being a frequently traveler, he turned to the wireless carrier in order to obtain an unlock code for his iPhone, but was informed that such unlock codes would not be provided to him, according to the suit. (link)

Kleierman's nine-page complaint, filed Monday in a New York State Supreme Court, notes that AT&T has routinely provided unlock codes for their phones in the past when requested by a customer. He is represtented by attorneys at Randall S. Newman, P.C.

The two previous class-action suits, filed in Illinois and California, allege that Apple and A&T failed to adequately inform early customers of the costs involved in maintaining a working battery for the life of the phone. Neither has come to trial. 

$100,000 Bounty for iPhone Unlock

Here's an interesting solution to legal and technical problems involved in freeing Apple's (AAPL) iPhone from its much maligned coupling with the AT&T (T) wireless network.

An anonymous donor, claiming to represent a group of open source advocates, today offered $100,000 for the right to release the code necessary to unlock an iPhone freely on the Web. The offer is posted here: FreeIPhoneforMoney.

At least two groups, UniquePhones and IPhoneSIMfree, claim to have developed a software-only solution that would fit the bill. But if they try to sell it, they risk running afoul of AT&T legal department (see iPhone Unlock Hits Legal Hang-Up). An exemption to the Digital Millennium Copyright Act allows individuals to unlock their own phones, but would not necessarily protect commercial efforts to sell the same service to others.

FreeIphoneforMoney's $100,000 offer would reward the efforts of the software developers while presumably skirting the legal problems. According to their post, "AT&T will not be able to do anything if it’s freely released " like a 10-step software-and-solder procedure that New Jersey teenager George Hotz published on his website.

The offer sets a Wednesday 12 AM deadline (no timezone specified) and promises developers full credit for the code and control over the domain on which it is released. It adds:

PS. This is more thank (sic) you guys would have made, if you sold license to each person for $25.

E-mail sent Tuesday morning asking for further details and clarification has not yet been answered.

How Much Is an Unlocked iPhone Worth?

For George Hotz, the 17-year-old New Jersey student who was the first to unlock an Apple (AAPL) iPhone, the answer is somewhere between $35,000 and $40,000.

That's roughly the market value of the Nissan 350Z and three unmodified 8 GB iPhones he says he received in exchange for one of the two iPhones he modified -- with the help of a soldering gun and some complicated software hacks -- to make them work on networks other that AT&T's (T).

Hotz had originally put the iPhone -- signed on the back -- up for sale on eBay, but ran into what his blog describes as "tons of problems" that the auction site apparently could not resolve. He ended offering the phone to the highest bidder through private sale via e-mail, a transaction that was completed Saturday afternoon, one day before he left home for college.

Hotz says he will donate the iPhones to three of the people who helped him crack the device's codes. He will presumably keep the "sweet" Nissan 350Z. "This has been a great end to a great summer," he wrote in his blog's final message. (link)

The buyer was reported to be Terry Daidone, founder of CertiCell, a Louisville, Ken.-based company that according it its website "provides a comprehensive portfolio of products and services that facilitate the acquisition, repair and redeployment of aftermarket mobile phones."

Two other software-only methods of unlocking iPhones have since emerged, but the first attempt to offer a solution for sale has run into legal snags. See here.

iPhone Unlock Hits Legal Hang-Up

One of the three methods developed to unlock the Apple (AAPL) iPhone -- and the first to attempt to make it commercially available -- has hit a legal roadblock, according to an Irish programmer involved in the effort.

On Saturday afternoon, when the software fix was scheduled to be posted for sale here, this press release appeared instead:

iphoneunlocking.com, a subsidiary of UniquePhones (www.uniquephones.com). was poised and ready to release remote software unlocking services for the iphone today at 12 noon EST. The sale of unlocking codes is on hold after the company received a telephone call from a Menlo Park, California, law firm at approximately 2:54 a.m. this morning (GMT).

After saying they were phoning on behalf of AT&T, the law firm presented issues such as copyright infringement and illegal software dissemination. Uniquephones is taking legal advice to ascertain whether AT&T was sending a warning shot or directly threatening legal action.... (link)

John McClaughlin, founder of Belfast-based Uniquephones, told PC World that he was awakened shortly before 3 a.m. local time by a man from O'Melveny & Myers, a law firm that has worked for Apple in the past. Claiming that he was calling on behalf of AT&T (T), the man (whose name McClaughlin did not record) offered "friendly advice" that he took as threatening. "If he wants to give me advice, he could have sent me an e-mail," said McLaughlin.

Calls to O'Melveny & Myers on Saturday have not yet been returned. Asked to comment, a spokesman for AT&T Wireless replied: "we don't have anything to offer at this time."

iphoneunlocking.com was the first group to publicize its efforts to "free" the iPhone to work with other cellphone carriers. It claimed to have achieved partial success less than 48 hours after the device went on sale and started taking e-mail registrations that day (see here). But unlike the other two groups that came forward this week to say they had successfully de-AT&Ted the iPhone (see How to Unlock an iPhone, Three Different Ways), it has yet to provide any proof that it has done so.

For a rundown on some of the legal issues involved, see Engadget's Is It Illegal to Unlock My iPhone?

How to Unlock an iPhone, Three Different Ways

UPDATE: One of the three methods described below  ran into a legal roadblock on Saturday. See iPhone Unlock Hits Legal Hang-Up. 

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With uncanny serendipity, three teams trying to unlock Apple's (AAPL) iPhone so that it can work with carriers other than AT&T (T) have reached their goal within days of each other.

First out of the block was George Hotz, a 17-year-old student from New Jersey who posted a 10-step technique on his website Thursday that requires cracking open the iPhone and doing some tricky soldering.

His accomplishment was quickly overshadowed by a team from iPhoneSIMfree.com, which developed a software-only technique that does the same thing without having to void the iPhone's warranty by opening it up. The group demonstrated its procedure today to Engadget's Ryan Block, who vouches for its authenticity on the blog and in a video. (Note the "T-Mobile" in the upper left hand corner of his iPhone screen, pictured above.)

Now Infoworld is reporting that a third team, based in Belfast but drawing on the resources of programmers around world, has accomplished the same thing -- a software-only hack that will allow iPhone owners to run the device on any GSM-based SIM card. According to John McLaughlin, founder of Uniquephones, the software will be available for download tomorrow afternoon at www.iphoneunlocking.com for $25 to $50.

The iPhoneSimFree team says per unit  and bulk licenses for its software will be available next week; no price has been set. Hotz says he has no plans to sell his hardware solution, although he has offered his iPhone, modified and autographed, for sale on eBay.

Neither Apple nor AT&T has commented on these developments, which came just shy of two months from the day the iPhone went on sale. AT&T may take comfort in the fact that most users won't bother trying to get around their 2-year service contract. Apple, for its part, could undo all these hacks with its next iPhone software upgrade.

[Photo courtesy of Engadget.]