Apple to iPhoners: Hacking Kills

Apple (Nasdaq: AAPL) issued a warning late Monday to iPhone owners who may have emancipated their device from its exclusive carrier, AT&T (NYSE: T), that future firmware updates could cause the modified phones to stop working altogether.

In addition, the company cautioned that once the phones have been unlocked, its Apple warranty becomes null and void.

Several software programs have surfaced in recent weeks that allow users of the Apple cell phone to change out the device's SIM (subscriber identity module) card and run it on another network. None have Apple's blessing.

"Apple has discovered that many of the unauthorized iPhone unlocking programs available on the Internet cause irreparable damage to the iPhone's software, which will likely result in the modified iPhone becoming permanently inoperable when a future Apple-supplied iPhone software update is installed," the company said in a statement.

"Apple strongly discourages users from installing unauthorized unlocking programs on their iPhones," the company said. "Users who make unauthorized modifications to the software on their iPhone violate their iPhone software license agreement and void their warranty. The permanent inability to use an iPhone due to installing unlocking software is not covered under the iPhone's warranty."

The Unlucky Few

Apple has sold some 1 million iPhones since they hit store shelves on June 29. While iPhone unlock software has received a great deal of attention by the media, David Chamberlain, an In-Stat analyst, estimated that relatively few owners will actually be affected by any conflict.

"You could probably measure this in the thousands, but not the tens of thousands," Chamberlain told MacNewsWorld. "It's probably far more interesting in the press than from any real serious impact on their business."

Hacked iPhones are a concern for Apple and AT&T insofar as the device maker made an agreement with the carrier based on best efforts to keep the iPhone locked into AT&T's network.

"So, this as much as anything is a requirement Apple has to protect the phone," Mike McGuire, a Gartner (NYSE: IT) analyst, told MacNewsWorld. "The risk people take according to the contracts -- it is what it is. What they are saying is, they're warning people that in the future, if there's an iTunes or iPhone software upgrade, there will probably be some issues with the functioning of the device."

Apple then can say "we warned you" should any iPhone hackers complain about broken devices, McGuire continued.

Unlocked Phones Pluses

Consumers in countries where the iPhone is not yet available, Chamberlain pointed out, are extremely anxious for the arrival of the device. With such a demand, it is possible that unlocked phones shipped to Europe, Asia and Japan would be top sellers for Apple. For Apple, the unlocked phones are not necessarily a bad thing.

"Is it a big issue for Apple? It isn't that huge," Chamberlain explained. "I can't see from a business perspective how they wouldn't want to sell more units. As a business issue for their partner, AT&T, it could be big. Because the big deal was that this was solely an AT&T phone. The notion that you could pull it off the network and use it on T-Mobile or take it to Europe and use it on the networks there, that really dilutes AT&Ts standings."

However, Chamberlain added, the iPod touch has done that already, offering a device that features a similar interface with no AT&T connectivity. Neither analyst expects sales of the iPhone to suffer if owners are reluctant to unhitch the device from AT&T.