Eight days after Apple's new iPhone went on sale, an international team of programmers announced on Saturday that the device had been "pwned" — hacker jargon for "controlled" or "compromised."

The loosely organized group, which calls itself the "iphone-dev team," played an important role in the worldwide dissemination of the original iPhone, releasing a series of tools that allowed the device to run third-party software and to work in countries where Apple had not yet struck deals with local carriers. By February 2008, estimates of the number of unlocked iPhones in circulation around the world ranged from 800,000 to 1.5 million. (link)

But the value of the latest hack, dubbed Pwnage 2.0 and available for free download here, is not so clear.

For one thing, although it "jailbreaks" the new iPhone — meaning it allows it to use programs not authorized by Apple — it does not yet "unlock" it to run on unauthorized cellular networks.

Moreover, the very real needs that the iphone-dev team served in the first year of the iPhone's release have largely dissipated.

Whereas there were almost no native third-party programs for the original iPhone, today there are hundreds available at Apple's App Store, 25% of them free. (See here.)

And even if the iphone-dev team releases an unlock tool for the new iPhone — which it probably will soon enough — Apple (AAPL) and its partners have effectively shut down the black market for unlocked iPhone 3Gs by requiring that buyers either sign a long-term contract with a carrier or pay a prohibitively high price for the phone. The official price of an unlocked, pre-paid 16GB iPhone in Italy, for example, is 569 euros ($888).

The real value of the new tool — which can both jailbreak and unlock the original iPhone — may be for people who want to use the iPhone classic in countries with expensive calling and data plans (Canada and New Zealand come immediately to mind).

But there are risks to consider. Installing any unauthorized firmware on an iPhone voids the warranty and could "brick" the device. Even though the new jailbreak program has an easy-to-use interface and is supported by step-by-step instructions — with screen grabs — a high percentage of the user comments here and here are from iPhone owners who have run into serious problems.

Don't be fooled by the friendly interface. Pwnage 2.0 is not for the faint of heart.

UPDATE: Erica Sadun, an iPhone developer and veteran jailbreaker, reports on TUAW that she has liberated her iPhone 3G with the new tool. "Without getting in details," she writes, "I'd rate the new 2.0 Pwnage software as 'for dedicated hackers only.'" (link)

Hats off to Silicon Alley Insider for their continued coverage of the overseas iPhone market.

Last week, Henry Blodget plucked a pseudonymous post from a New York Times comment stream and re-published what may be the smartest analysis to date of what's driving the extraordinary demand for iPhones overseas, especially in emerging markets (see "Tantrum" here).

Today, Dan Frommer treats us to an informal survey of the going rate for those iPhones once they are unlocked and put up for sale. The results, grabbed from Craigslist or their local equivalents (Molotok, anyone?), are posted at right. For comparison, he notes, Apple (AAPL) sells the 8 GB iPhone for $399 in the U.S. and the 16 GB model for $499. (link)

UPDATE: It appears this whole thing was a hoax. This was posted Monday on a MacRumor forum:

Hey Guys,

It's finally time I just come out and say it; I lied.

Tiny-Code never had any relations with Apple, Inc. or any other division of Apple. Never had the new firmware or any pre-SDK pack. Certainly never signed any NDA.

I find it interesting that a simple joke on the front of a minor at best Installer.app repo can cause so many wakes…

Sincerest Apologies,

KellyTM/Tiny-Code Developer (link)

Thanks reader Xandro for the tip.

—

Apple's (AAPL) relations with third-party developers have never been easy, and the little psychodrama that unfolded over the weekend with a one-man outfit called Tiny Code is a classic case in point.

It started on Friday when Tiny Code, which publishes applications and software patches for the iPhone, announced on its website that it was no longer working with firmware 1.1.3 — the current version of the iPhone's underlying software. Then it added:

We can't say much, but we are working with Apple and with their SDK for the next firmware release and SDK applications and we shouldn't be missed for long. We will no longer update our Installer.app repo for legality reasons and you should see us soon on iTunes.

This was news. Steve Jobs had announced in October that Apple would be releasing its much-anticipated iPhone SDK (Software Developers Kit) before the end of February, and there were reports last year that a handful of large third-party developers — like the giant gaming company Electronic Arts — had been seeded early copies. But this was the first evidence that Apple was reaching out not only to smaller developers, but to a programmer who had been deeply involved in developing unauthorized apps for jailbroken iPhones.

Then, in a sidebar, Tiny Code adds:

UPDATE: We are now targeting fw 1.1.4 Alpha 2.

This was the first anybody outside Apple's nondisclosure circle had heard anything about 1.1.4, and it set off a rush of speculation. Did the fact that the firmware was in alpha 2 mean that it was just around the corner — perhaps for release at the rumored Feb. 26 Apple event? Did the fact that it was not yet in beta mean that it was running late? Would it be released with the SDK or a few weeks after? Would it break all the existing third-party apps and send the hackers who unlock iPhones back to square one? (see, for example, here)

No sooner had the speculation started than Tiny Code's website disappeared, replaced with an inoffensive link to Apple's official iPhone Dev Center. The original message (pasted above) was preserved in a screen grab at macenstein, one of the first websites to report the story.

How is this an illustration of Apple's uneasy relations with third party developers?

Because of what happened next. Kellyâ„¢, the man behind the one-man Tiny Code operation, tells the story in a four-point message posted yesterday on a MacRumors forum:

One: Yes, I have a copy of the Apple SDK for the iPhone targeting firmware 1.1.4.

Two: Yes, Tiny-Code.com was ordered to be removed from operation by Apple, Inc because by releasing firmware versions and stating I had possession of the firmware and SDK was apparently a violation of the Non-Disclosure Agreement I agreed to when I accepted a copy of the SDK and firmware.

Three: Yes I was wrist-slapped by Apple and won't be included in any further firmware beta's or testing/coding.

And finally, Four: No I cannot disclose any more about anything without getting into more trouble, stating the above is ok because well let's face it, there is documented proof I already have and Apple already backhanded me for it. (link)

As Seinfeld's soup man might have put it: "No more soup for you, Tiny Code!"

You can't just click a button and unlock a new Apple (AAPL) iPhone to run in any country or on any carrier's network.

That would be too easy.

But the software unlock for 1.1.3 iPhones published early this morning by George Hotz, and widely publicized by Engadget and others, has now been translated out of geek-speak and into step-by-step procedures that ordinary mortals can follow. There are several versions on the Net, but the clearest one we've seen so far is at Pinky's Brain Blog here. In addition to the four-step recipe, it provides screengrabs and all the necessary links. The usual caveats (risks, bricks, etc.) apply.

UPDATE: Pinky, who still hasn't found time to complete his instructions, is now pointing visitors to iClarified's tutorial here.

Hotz, you may recall, is the Glen Rock, New Jersey teenager who achieved national attention last summer when he helped unlock the original iPhone. A detailed account of his latest marathon feat of reverse programming — and a DONATE button you can click if you want to support him with a contribution — is available here.

It's one of the smallest nations in Africa, roughly the size of Hawaii with a population of half a million. Yet the former Spanish colony of Equatorial Guinea tops the list of iPhone-using countries compiled by Net Applications, which issued a report on Friday that ranks them by the relative frequency with which the Web was accessed in January via an Apple (AAPL) iPhone.

"We've heard the rumors that many iPhones are being used outside the officially sanctioned countries," writes the net service company in iPhones Without Border. "So, we decided to check it out and surprise, surprise, it's true. The iPhone has a presence in almost every country on earth."

The full list can be seen at NetApplications.com. I've pasted as much of it as I could fit in a screen-grab below the fold.

Given that Apple has only sanctioned iPhone use in four countries — the U.S., the U.K., Germany and France — it's amazing how widely it is now being used. If you were wondering where those 1 million unlocked iPhones went, this may be the answer.

In fact, there were only five countries in the survey where the iPhone did not show up — South Korea, Lithuania, Taiwan, Malta and Iran — perhaps in some cases because GSM and EDGE aren't supported there.

It's also surprising, at least at first glance, how many third world countries turn up near the top of this list. Two out of every 1,000 Americans now surf the Web using an iPhone, according to Net Applications, but in the Ivory Coast that number is nearly five per thousand. In Equatorial Guinea, it's better than two per hundred. [UPDATE: It has jumped overnight to more than one in ten in Equatorial Guinea, according to the weekly stats.]

Or maybe it's not so surprising, given the explosion of cell phone use in Africa over the past five years (see, for example, here). In countries where wi-fi and Ethernet connections are rare, a $400 iPhone may be a relatively cheap and dependable way to reach the Internet.

And it's really not so surprising to find Equatorial Guinea in the No. 1 spot. The country's economy has boomed since the discovery of offshore oil reserves in 1996. According to the CIA Factbook, Equatorial Guinea now has the fourth highest per capita income in the world, after Luxembourg, Bermuda and Jersey.

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Here we go again.

British reviewers who have tested the Apple (AAPL) iPhone that goes on sale in the U.K. Friday report that it comes pre-installed with a software update — 1.1.2 — that disables third-party applications.

According to the British gadget website T3, the update closes the so-called TIFF exploit — the software loophole used by hackers to "jailbreak" version 1.1.1. This loophole allowed iPhone owners to install dozens of third-party apps, including such popular add-ons as Navizon (a location finder), Voice Notes (a voice recorder) and instant-messaging programs like Apollo and Mobile Chat.

Thanks to one-click installations scripts like AppSnapp, these unauthorized iPhone add-ons have become almost mainstream. AppSnapp's developers report that their software was downloaded 144,000 times in its first three days — which suggests that as many as 1 in 10 iPhone owners could be in for a rude surprise when they upgrade their software next weekend.

Some Apple bloggers — led by Quincy Pince-Nez at 9to5 Mac — advocate holding-off any iTunes and iPhone updates until programmers can find another way to install their apps. Apple would undoubtedly prefer that everybody wait until it releases its official iPhone software developers kit (SDK) in February, and Apple-sanctioned apps start to flow in.

The update is also likely to disable — and perhaps re-brick — iPhones unlocked to work with cellular providers other than Apple's official carriers (AT&T in the U.S., O2 in the U.K., T-Mobile in Germany and Orange in France).

[Photo courtesy of T3]

One of the unanswered questions about Apple's (AAPL) iPhone was answered yesterday by COO Tim Cook during the company's Q4 earnings call with analysts. Responding to a query from Sanford Berstein's Toni Sacconaghi about how high iPhone sales jumped after the $200 price cut, Cook disclosed a nugget of market data Sacconaghi hadn't requested:

Timothy D. Cook

Toni, we were very happy with the elasticity that we saw. It enabled us to far surpass our expectation of hitting around a million units cumulatively by the end of the quarter. Some number of these were sold to people that have an intention to unlock and where we don’t know precisely how many people are doing that, our current guess is there is probably 250,000 of the 1.4 million that we sold where people had bought them with the intention of doing that. Many of those happened after the price cut. (full transcript here)

That's an astonishing figure — higher than any analyst's prediction and closer to the estimates of the iPhone Dev Team, which has registered half million downloads of its anySim unlock software. It means that more than 17% of the iPhones sold were at risk of being disabled when Apple released its notorious software update 1.1.1. That's a ton of bricks.

How did Apple arrive at its estimate? Cook didn't say, but it could have just subtracted the number of AT&T activations from the number of iPhone sold. Even that figure might be too low; it wouldn't include iPhones activated with AT&T and subsequently unlocked for use with overseas carriers or with T-Mobile in the U.S.

The market for unlocked phones presumably shrank after the bricking incident and the announcement of deals to sell the iPhone in England, Germany and France. Apple says it plans to begin selling the iPhone in Asia in 2008.

Columbus Day was a busy one for the two dozen or so renegade programmers who have taken it upon themselves to re-do what Apple (AAPL) undid with its latest software update for the iPhone. Firmware update 1.1.1, released 10 days earlier, had wiped out virtually every unauthorized program written for the device.

At noon yesterday, Erica Sadun, a writer and programmer who has emerged as the unofficial spokesperson for the so-called iPhone Dev team, announced on The Unofficial Apple Weblog (tuaw.org) that her "guys" had managed to "jailbreak 1.1.1" — opening a crack in the updated iPhone's firmware that might allow some of the third-party applications to slip back in.

"Right now," she wrote, "they're nowhere near releasing a general-use tool but the first steps have been made. Congratulations to dinopio, asap18, netkas, Martyn, mjc, Niacin, BloomFilter, pytey, tE_gU, pumpkin, roxfan, sam, SmileyDude, NerveGas, Nate True, Arminius, DirectriX, Edgan, ixtli, kroo, xorl, and the rest of the team." (link)

By 8:25, Sadun was able to announce that iPhone hacker asap18 had managed to seize control of SpringBoard — the iPhone's home screen — and port up to 15 third-party apps onto the device. By early evening, several of these apps had been tested and were working fine.

Meanwhile, in separate news flash, Sadun reported that the iPod Touch — the top-of- the-line multi-touch iPod that had so far resisted hacking — had also been hacked. At 8:00 pm she wrote:

It looks like iPod touch hacker Niacin has achieved read access to the iPod touch root. Following up on the iPhone jailbreak earlier today, this is another step forward into opening up both the iPhone and iPod touch for general read-write access and third party application support. More news as it develops. (link)

This news is particularly significant because although the iPod touch has all the capabilities it needs to be a general purpose Wi-Fi pda, Apple has not provided the applications — a Mail client chief among them — that would allow it to be used as such.

(Note that none of these developments affect iPhones unlocked to work with carriers other than AT&T. They are still "bricked" by update 1.1.1.)

The problem with both the iPhone and iTouch breakthroughs is that they are dependent on the so-called TIFF exploit in Safari — a security hole that was first reported more than a year and a half ago and has long since been closed in other platforms. It's probably only a matter of weeks before Apple issues another software update that shuts it down — and wipes out the third-party apps one more time.

How long Sadun's friends have the energy to keep playing cat-and-mouse with Steve Jobs' programmers remains to be seen.

See also How Apple "Bricked" the iPhone.

[Image of third-party iPhone apps courtesy of tuaw.com.]

Amid all the controversy about those unlocked iPhones — and what Apple's (AAPL) most recent software update did to them — it's never been clear how many devices were actually affected. Based on the number of times their iUnlock software was downloaded, the iPhone Dev team put the number of unlocked iPhones, perhaps unrealistically, at several hundred thousand. Shaw Wu of American Technology Research insists the real figure is so small as to be "immaterial."

Now we have the first estimate based on actual shoe-leather research and, not surprisingly, it falls between the two.

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