iPhone Activation Woes Hit Early Buyers

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Some of the first people in the U.S. to purchase the iPhone 3G walked out of an Apple Store in New York disappointed Friday when Apple's plan to activate the new devices in stores backfired.

Problems with the iTunes server caused some enthusiasts who had waited in line for hours to walk out of the store unable to use their new iPhones, according to the disgruntled customers.

Customer Gripes 

"I've got two phones on me and neither of them work," said Adolfo Peralta, a Brooklyn resident who lined up to purchase the iPhone 3G at 6:30 a.m. local time for the 8 a.m. SoHo store opening. "I have to go find a pay phone to make a phone call."

Apple Store employees deactivated his original iPhone to activate his new one, but the activation could not be completed because they could not connect to iTunes, he reported.

Peralta said he felt cheated by the fact he didn't have a working iPhone when he left the store. "You wait all this time," he said. "I don't think it's worth it."

Still, he said he was "thrilled" to have been one of the first to get the 3G device.

Other enthusiasts reported similar issues as they left the store on Prince Street at around 10:30 a.m.

Anoele Perillo, who got in line at 7 a.m. outside the SoHo store to purchase her iPhone, stood outside around 10:30 a.m. smoking a cigarette while she waited for problems inside the store to be fixed.

"All of the systems are down," Perillo said, adding that she had finished two crossword puzzles while waiting for her iPhone activation to be complete. She said employees were shutting down some computers at the store to try to fix some of the problems with the iTunes network the store was experiencing.

Jason Pinsky, a chief technology officer of a clothing company in New York, also attributed the activation problems he experienced at the SoHo store to the iTunes network.

While he could make phone calls with his new iPhone 3G -- a feature he demonstrated outside the store -- Pinsky couldn't use the iPod functionality because the iTunes part of the activation couldn't be completed in the store due to the network "bailing."

Pinsky had bought the original iPhone last year and said he didn't feel cheated by paying the premium for the original product. "I'm an early adopter," he said. "There's always a price to pay" for being first.

Apple requires customers to activate the iPhone 3G in stores where they were purchased. This was not a requirement for the original iPhone, which was released a little more than a year ago.

Apple: No Comment 

Apple did not immediately return requests for comment Friday morning. An Apple Store employee at the SoHo store said no one there was qualified to comment on the problem, but said that to him, things "appeared to be going smoothly."

Some customers did leave the store with their iPhones successfully activated and reported no activation problems, they said.

As customers waited for their iPhones to be activated at the SoHo store, more continued arriving to purchase the phone. The line snaked for several blocks by 11 a.m. local time.

The activation process was also slow at Apple's flagship New York store on Fifth Avenue and at the Apple Store in downtown San Francisco, customers reported.

An environmental activist group called Waiting for Apples, who were the first in line at the Fifth Avenue store -- having camped out for a week to purchase their iPhone 3Gs -- were still awaiting activation at about 11:30 a.m., reported a group member, who asked not to be named.

He added that Apple Store employees were calling the activation problem a "hiccup" and that activation would go smoothly for awhile before another hiccup occurred.

Willing to Wait 

At 7:30 a.m. local time in New York at the flagship store, about 1,000 people were in a line that stretched around the corner on the same block where the famous FAO Schwarz toy store is located.

One person standing in line, who asked not to be named, said the crowd was about half the size of the throng that waited for the first iPhone. One reason for the smaller crowd, noted a few passersby, was that last year the launch was at the end of the day, giving people time to get out of work and check out the scene.

The consensus of about a half dozen people standing in line was that most users want the new iPhone mainly for the 3G (third-generation) speed. Several people said they own an iPhone, but want the speed of the new version. That was also the issue at the top of mind for some first-time iPhone buyers.

"It's 3G now, it's faster," said Ryan Tracy, the president of Cheech and Chong dot com, a retail and marketing company and Web site for the Cheech and Chong comedy team. Tracy said he was standing in line for several hours before the store opened.

"There's also a lot of other goodies you can download," Tracy said, referring to the iPhone 2.0 platform that lets users download applications from the iTunes service.

He also agreed with other people in line that the lower price was not the biggest issue. Asked whether the combination of applications, speed and lower price will make the new iPhone into a hot product, Tracy said "It's already a hit product, everyone's talking about it, everyone's here."

Problems Across the Pond 

Software problems with the network of telecommunications operator O2 at Apple's London flagship store also caused activation delays, where the iPhone 3G also went on sale at 8 a.m. local time. O2 is the exclusive network operator for the iPhone in the U.K.

Problems with activation could affect the number of iPhone 3Gs Apple sells over the weekend if people decide to wait a few days for the problems to be resolved before making their purchases.

RBC Capital Markets projected that Apple may sell more than 1 million phones worldwide over the first weekend to meet pent-up demand, according to a report by analyst Mike Abramsky. The number could be four times more than the 270,000 iPhones that were sold at launch last year, he wrote.

But limited supplies could frustrate buyers as Apple shipped only 1.5 million iPhone 3Gs, Abramsky wrote. As supplies normalize, iPhone 3G is set for long-term success, and the company could ship up to 5.1 million iPhones in the quarter, according to the report.

More than half of current iPhone owners are likely to upgrade to iPhone 3G, according to a study from ChangeWave Research. Around 55 percent of current iPhone buyers said they are likely to upgrade to 3G iPhone, with more than half of them not planning to wait long, according to the research.

Agam Shah and Stephen Lawson in San Francisco contributed to this report.

See PC World's complete iPhone coverage.

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