The Mystery of the Missing iPhones is underway because approximately 1.7 million more iPhones have been sold than are being used by AT&T consumers, which is both good and bad for Apple. Apple Inc. reported that it sold 3.7 million of its smartphones worldwide in 2007. However, AT&T, the only authorized wireless service provider for the iPhone in the U.S., reported that its subscribers activated just less than 2 million units in 2007. Uncertainty over the other 1.7 million iPhones sunk Apples stock by 34 percent in the first six weeks of 2008. Two sources close to Apple say that far more of the iPhones that Apple is selling are being unlocked than first thought. Unlocked phones are those phones that are adapted by consumers or gray-market distributors, using unauthorized software and phone cards, to run on the wireless networks of companies with which Apple has no service agreement. Unlocked iPhones are bad news for Apples short-term earnings, but unlocked iPhones are not all bad for Apple. Some U.S. customers unlock phones because they are not happy with AT&Ts service, though the vast majority of the unlockers are Apple enthusiasts abroad who cannot get authorized service in their home markets. The real question is what everything means for overall demand of the iPhone. Apples iPhone sales are certainly down and might remain down at least until the company introduces its next-generation iPhone in the summer of 2008. The best resolution for Apple might be to pick up the pace of its overseas expansion, which would give unlocked iPhone owners a chance to sign up with the companys selected wireless partners, and allow Apple to tap into all those other potential consumers who have not wanted to deal with the hassles of unlocking a phone.