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2009-11-03, update: GeoHot released the unlock for baseband 05.11.07! Check it out.
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Recently a friend purchased an iPhone off of craigslist that he wanted to unlock for use with a different carrier. The phone was running iPhone OS 3.1, which the dev team has released a jailbreak for. Unfortunately, what he didn’t know was that the boot loader (or bootloader) version mattered a lot :)

He wanted a good, clean unit, and this was a newly refurbished one, jailbroken, very clean, no scratches, and 0 minute usage. He thought all he had to do was install ultrasn0w and he would be good to go. Well, he tried, but no luck. After a few tries he brought it to me and I started my research. Apparently, because it is a newly refurbished unit, it had the latest version of everything: iPhone 3.1 (seller might have upgraded it), latest baseband, and latest boot loader. Here is what my research turned up.

1. Baseband 05.11.07 cannot be unlocked at the time of this post (October 2nd, 2009).
2. You can downgrade baseband 05.11.07, but only if the boot loader is version 05.08 or older. In this case the easiest solution is to use fuzzyband downgrader.
3. If you have baseband 05.11.07 and a boot loader newer than 05.08 then, unfortunately, you are out of luck because you cannot unlock your iPhone.

If you are buying an iPhone for use with a carrier other than AT&T then make sure that your device can be unlocked. Also, be careful once you do get the new, compatible iPhone because upgrading to iPhone OS 3.1 using the official ipsw will upgrade the baseband! and possibly the boot loader; you will be stuck without an unlock! (Hopefully you are not reading this post after the fact :|)

The easiest way to check the boot loader and baseband versions is to install Fuzzyband using Cydia. Do this before the purchase. You want a boot loader that is 05.08 or older, and a baseband that is 05.11.07 or older (if it is 05.11.07 then you will have to downgrade to an older version, which is possible assuming that the boot loader version is correct).

What if you have an “un-unlockable” iPhone?

Basically, you need an AT&T subscriber :) Here are a few (realistic!) possibilities.

1. The cleanest option is to sell it to someone who is an AT&T subscriber. There are AT&T subscribers looking for iPhones. My guess is that it is because they don’t want to extend their contract.
2. A rare case would be an AT&T subscriber with an unlockable iPhone looking for an iPhone for a family member who is not on AT&T. In this case they can unlock their phone and give it to the family member, and use the new device themselves (on AT&T).
3. Swap it with an AT&T subscriber who is using an unlockable iPhone. You will have to give them some incentive to do this though, e.g. if your iPhone is newer, cleaner than theirs, or maybe offer coffee, lunch, etc. :)