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Analysts describe the number of unlocked iPhones as "astounding"

Apple’s iPhone was arguably the hottest piece of consumer electronic for 2007. Those who purchased iPhones were expected to activate new contracts on exclusive wireless networks in the U.S. and parts of Europe. This proved difficult for those who desperately wanted iPhones, but were either unwilling or unable to commit with AT&T – such as those who live outside of the officially supported territories.

Such restrictions have led savvy cell phone enthusiasts to acquire iPhone hardware, but evade the attached contract. Those who wish to run iPhone have to unlock the mobile before it may run on any outside GSM network.

According to analysts cited by Bloomberg, around 1 million of 3.75 million iPhones sold last year were unlocked to run on outside networks. Since Apple receives an estimated several hundred dollars in royalties for every iPhone contract, Toni Sacconaghi of Institutional Investor magazine believes that Apple is losing $300 to $400 million in future revenue due to the abundance of unlocked phones.

"The prevalence of unlocked iPhones presents a significant strategic dilemma to Apple," said Sacconaghi, adding that unlocked iPhones generate 50 percent less revenue and as much as 75 percent less profit than those under contract. Furthermore, new carriers may be reluctant to sign with Apple due to the unlocking market.

The prevalence of unlocked iPhones is something Apple is fully aware of, but doesn’t appear to be addressing. "The number of iPhones bought with the intention of unlocking was significant in the quarter, but we are unsure how to reliably estimate the number," Chief Operating Officer Timothy Cook told analysts during Apple’s first-quarter results reveal. "We are unsure when all the recipients will activate."

Unlocked iPhones aren’t ideal for Apple’s business model, but aren’t completely bad either. Mike Abramsky of RBC Capital Markets wrote in a report that unlocked phones, "though a headache for carriers, are financially positive for Apple, and in our view bode well for global iPhone demand, and for Apple exceeding its 10 million, 18-month target."





"Folks that want porn can buy an Android phone." -- Steve Jobs
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