The New York Times talks about the iPhone ‘smuggling racket’. Apparently, it is estimated that 1.3 million iPhones have left the US and are being used on non-approved networks. This is a fair chunk of the 3.7 million Apple have said they sold last year.

This is regarded as some sort of blow to Apple.

For Apple, the sale of iPhones to people who ship them to China is a source of revenue. But the company is still losing out, because its exclusive deals with phone service providers bring in revenue after the phone is sold. If the phones were activated in the United States, Apple would receive as much as $120 a year per user from AT&T, analysts say.

Exactly, what is the cost again? “If they were activated in the US.” The point is that they won’t and never will be activated in the US. This can’t be a loss to Apple. The loss is that if it wants to do deals with mobile carriers internationally like it did with AT&T, it may face some push-back because the lead users there are already using.

Apple have clearly stuffed up here and it is this: they could have offered an unlocked phone — potentially at double the current price — and have achieved lots of sales. Every other Apple product gets sold around the world instantly and their global marketing campaigns work. They mis-judged the iPhone, got stuck in what must be some horrific contracts that didn’t take into account a ‘success contingency.’ We are all paying the price.

Moreover, what sort of ‘smuggling’ is this anyway? At best, it is a ‘grey’ market as Luke Froeb argues but there is no sense in which international customers are cheating Apple by buying a product not available in their countries.