Underground Markets Set Sights on New iPhone

HONG KONG – As Apple Inc. rolled out its newest iPhone on Friday, dealers and buyers were anticipating the popular device in Asia's thriving underground marketplace in as little as a few days.

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The iPhones are nothing new to Asia, where enthusiasts from Bangkok to Shanghai already sport fake and unlocked versions of last year's models — unlocked so they can work with any carrier, not just the Apple-authorized ones.

Now, electronics markets are preparing for an influx of iPhones capable of 3G, or third-generation, cell phone technology.

In the Chinese territory, ads pitching unlocked iPhones and services to unlock them were everywhere in a shopping mall with three floors of cell-phone stores.

Shop owner Chris Lau said he's already taken orders for the new iPhone from 40 people and estimated its arrival on the gray market in about a week.

"I'm not 100 percent sure the stocks we are receiving will be unlocked, but I don't think it will take long to crack it," he said, referring to the practice of hacking iPhones' computer code so they can be used with different mobile service providers.

Legal purchase of an iPhone usually locks a buyer into a service provider partnered with Apple, such as Softbank Corp. in Japan.

Candice Lam was among those considering a gray-market purchase because she didn't want to be locked into paying for a two-year contract with Apple's local carrier, Hutchison Telecom.

"Some of my friends are already using it. I want to have one myself," the 20-year-old university student said while browsing phone shops. "I already have a contract with one operator. I don't want to sign another just for a phone."

Vendors didn't have any stocks at Beijing's Nurenjie shopping complex, a known center for sales of smuggled iPhones across the street from the new U.S. Embassy. Apple does not sell the iPhone in China, but unlocked versions brought from other markets are plentiful.

Demand for the new device was running high, with some dealers saying unlocked 3G-ready iPhones should fetch about $700 once they're available. The majority will probably come from the United States and Hong Kong, they said.

"Many people have called to order the 3G iPhone, but we simply don't have the merchandise," said Chang Wei of Xiaowei Telecommunications.

Online auction sites, however, were offering the iPhone by midday for those willing to pay. Sellers on one mainland China site, taobao.com, were asking nearly $1,400 for the 16-gigabyte version.

Apple plans to sell its 8-gigabyte iPhone for $199 in the United States and the 16-gigabyte version for $299. It's selling in Japan for about $215 for the 8-gigabyte model, while the 16-gigabyte version costs about $320.

Hong Kong's iPhone comes unlocked but buyers still must purchase a two-year mobile contract; the 8-gigabyte phone goes for about $375.

On a Yahoo Inc. site catering to Hong Kong, one seller was peddling 8-gigabyte phones purchased in New Zealand for more than $1,200. "Its going very fast! sold 2 in 20 mins," the seller wrote.

Representatives from Apple and its service providers in Japan and Hong Kong declined to comment on the gray market or discuss any countermeasures they might take.

Not that Apple isn't likely keeping watch over the situation. Last year the company threatened to take legal action against Singapore retailers it accused of selling unlocked phones unless they stopped, according to local media reports.

Aside from lawsuits, the company could track buyers and serial numbers. It also could audit distributors and resellers, who are typically the biggest risk in the supply chain, said Steve Vickers, president of business security consultants International Risk.

But limiting underground sales becomes all the more difficult with a product so widely available as the iPhone.

"There would be less risk if you could keep it under wraps," Vickers said. "But eventually you have to sell it."