Race is on to unlock the iPhone

Locked phones can only be used with cellular service from one carrier, a move designed to guarantee carriers recover the cost of subsidizing a handset through monthly service charges. But the cost of the iPhone, which is priced at either US$499 or $599 depending on the model, is not subsidized by AT&T.

Users must pay full price for the handset and sign a two-year contract, which requires them to pay from $59.99 to $99.99 per month for cellular service.

Unlocking the iPhone will enable the handset to be used with any cellular provider with a GSM (Global System for Mobile Communication) or EDGE (Enhanced Data Rates for GSM Evolution) network, not just AT&T's network. That's an attractive proposition for users who already have a cellular contract with another carrier, or users outside the U.S. who can't wait to get their hands on Apple's new handset.

Efforts to unlock the iPhone are being tracked on several Web sites, including Hackint0sh and the iPhone Dev Wiki.

Initial signs look promising, although the iPhone remained locked at the time of writing.

Like other GSM phones, the iPhone uses a SIM (Subscriber Identity Module) card, a removable smart card that contains a user's phone number as well as limited storage space for contacts and messages. SIM cards are designed to be swapped between phones, allowing users to change handsets while using their cellular service. They can also be switched when users travel, allowing them to avoid international roaming charges with the purchase of a prepaid, local SIM card.

A removable SIM card is a good sign for hackers, because it indicates the phone is locked using firmware, which can likely be cracked.

Of course, unlocking the iPhone requires more than simply changing the SIM card. Swapping the AT&T SIM card used with the iPhone for a SIM card from another carrier results in an error message that reads, "Incorrect SIM. This iPhone must be used with an approved SIM."

To unlock the iPhone, hackers must first circumvent the handset's activation process. New iPhone users are required to activate their handset using the latest version of iTunes, released on Friday, before they can use the phone. Without activation, which requires users to sign up for an AT&T service plan, none of the iPhone's functions, including the camera and music player, can be accessed.

If hackers can circumvent the activation process, the next challenge will be to unlock the SIM card itself.

That could happen as soon as Monday. By Sunday night, U.S. time, hackers had made progress towards circumventing the iPhone activation process, gaining access to key system files and finding two passwords used with the phone, according to the iPhone Dev Wiki.

"I think by the end of tomorrow we'll have an activation crack," one user wrote on the site.