More than a quarter of
people who bought Apple Inc’s iPhone are using them on wireless networks other
than AT&T’s, the exclusive iPhone carrier in the US, a
“stunning” number that will pressure the company’s business model,
an analyst said.

Bernstein Research analyst Toni Sacconaghi said
analysis of sales numbers from Apple and AT&T Inc revealed about 1.45
million phones were “missing in action” at the end of

About 480,000 of these were believed to be held by AT&T as
inventory, leaving another 1 million phones, or 27 per cent of the total, that
Sacconaghi said were “unlocked” so they could work on non-AT&T

Apple executives said last week the number of unlocked
phones was “significant” but declined to give an estimate. Most
analysts had estimated the portion of unlocked phones at about 20 per

Spokespersons for Apple and AT&T declined to comment. The
higher number is worrying for Apple because the company receives a cut of
AT&T’s iPhone service fees, revenue that carries a high gross margin and has
fuelled optimism over its earnings potential.

Sacconaghi said, if
Apple hit its sales goal of 10 million iPhones by the end of fiscal 2008 but 30
per cent of these don’t result in any carrier payments, its revenue and profit
would be $500 million and 37 cents per share lower than expected.

Apple cracks down on unlocked phones it could preserve its high margins but miss
its sales target, whereas allowing them could erode profitability and make it
tough to sign more carriers to similar revenue-sharing

“Besides the financial implications, we believe the
prevalence of unlocked iPhones presents a significant strategic dilemma to
Apple,” Sacconaghi wrote.

Via Times of India