When the first (generation) iPhone was released, It was done a lot differently to the way other cellphones, even smartphones, were sold:
First, the iPhone did not appear to be subsidized. This was virtually unheard of. To pay the full price for a phone and then be expected to sign a two year contract? Sure, the iPhone was a cellphone like no other, but initially it cost a fortune. There was a loophole in the way it was purchased though. The iPhone was purchased and taken home to be activated on iTunes. Only then was a credit check done. If a purchaser did not pass the credit check they were offered the iPhone on a “Pay As you Go” prepaid plan. This meant no 2 year contract, but the iPhone was still locked to AT&T.

Meanwhile another, unrelated battle was taking place. The iPhone runs a slimmed down version of the Unix like BSD operating system, with a graphical front end. It was long before clever programmers had found their way into this closed system , and had opened it up (”Jailbroke” it) for a whole bevy of unsolicited, warranty-breaking third party-apps. A large number of these applications improved on the functionality of the iPhone. See Wikipedia’s article on Jailbreaking the iPhone.

At first Apple brought out firmware updates to close the loopholes in its Operating System, but the programmers were a step ahead – advising people running “Jailbroken” iPhones not to upgrade their firmware until the coders had everything working on the iPhone again.

The pressure from other countries to obtain unlocked iPhones either caused unknown developers (possibly with iPhone hacking experience) to take their programming further to the actual unlocking of the iPhone. I have heard that an estimated 40 percent of  first generation iPhones probably ended up outside of the US.