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Sunday, February 17, 2008

Stolen iPhones on Black Market

Very interesting article from NewsFactor:

Encamped along the aisles of the massive Zhongguancun Kemao Electronics Market in Beijing are many people like Li Zhongxin, of the Beijing Xinyu Lianhe Telecom Equipment Co. Li sits atop a plastic stool in front of his open-air stall on the third floor, scanning the throngs of shoppers for would-be customers. There's no sign of Apple's iPhone among the thicket of cell phones, handset covers, and other accessories hung on shelves and inside the waist-high glass display case, but he'll be glad to show you one. In exchange for an up-front payment, "you can buy as many as you'd like," Li says.

The assertion may seem misplaced in a country where Apple has yet to introduce the iPhone. The device is officially on sale only in the U.S., Britain, France, and Germany, where Apple has signed exclusive contracts with cellular carriers including AT&T. Yet Li's booming business is the very real byproduct of pent-up demand for a much-hyped device made by a company that places strict limits on where and how it's sold.

And Li represents only a sliver of the intricate, widening global iPhone gray market that encompasses no-name importer-exporters in China, a semiconductor maker in Eastern Europe, businessmen in the Midwest and Australia, and "runners" enlisted to buy as many iPhones as they can from stores run by Apple and its partners in the U.S. and Western Europe. And, of course, there are countless small retailers willing to buy and then sell iPhones at jacked-up prices to consumers worldwide.

Prague at the Epicenter

Sources confirm analyst reports that 800,000 to 1 million iPhones, or about one-fourth of the total sold, are "unlocked" -- that is, altered to be able to run on networks other than those of Apple's exclusive partners.

This iPhone aftermarket didn't take long to develop. By the time the device went on sale on June 29, 2007, software hackers and companies that specialize in unlocking cell phones were already searching for ways to make the iPhone work on nonsanctioned networks. Within weeks, online forums were buzzing with an answer that emanated from a tiny company based in Prague, Czech Republic.

Pavel Zaboj is a 36-year-old former math student who together with friends developed an electronic device called Turbo SIM that was designed to turn cell phones into mobile payment systems. Turns out Turbo SIM could also be used to trick the iPhone into thinking it's operating on AT&T's network. By mid-August, Zaboj's 10-person firm, Bladox, was being flooded with orders, particularly from Canada and Mexico, where Apple addicts didn't have to venture far to get an iPhone. Bladox was totally unprepared, and couldn't fill the orders that rolled in. "We just sat their open-mouthed," Zaboj says. (continued... [read at NewsFactor)

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