Photo by Matt Sarnecki.

When Sandra Puente’s husband suggested she switch to the iPhone, she did not head directly to the nearest Apple store or one of the authorized iPhone network stores, AT&T, Verizon or Sprint.

Instead, Puente took the advice of her brother, and on a recent Friday drove from her home in Redwood City to a small storefront near Mission and 20th streets called Compupod. In the back, amid racks of tacky T-shirts, spare computer parts and cellular phone accessories, she met with a young salesman named Christian Soto, who told her about another way: An iPhone on a prepaid, non-contract carrier called H20.

Per month H20 is nearly 50 percent cheaper than authorized carriers, and includes $20 of international calls, which can translate to 10 hours of talk to some popular destinations, including Mexico City, where Puente has family. The downside? Users cannot send images or MMS messages, and if there’s a problem, customers should not expect dependable customer service from H20, said Soto.

That has not discouraged the 10-plus customers Soto has signed up each day since September. “Business is good,” he said, switching back and forth between Spanish and English as customers streamed through the small retail space. At 2 p.m. that Friday, Soto fielded questions from a half-dozen customers who wanted to know if the international calls came with a catch. No, he said.

Those concerned about H20’s network and data capabilities might be surprised to learn that H20 uses AT&T’s 3G network, the same network as all contracted AT&T iPhone users. H20 operates on the AT&T network as a mobile virtual network operator (MVNO), which means that it has no antennas, but uses AT&T’s.

Hugo Gonzalez, another employee at Compupod, suggested that AT&T allows H20 to use its antennas because it gives AT&T a share of the profits from cellphone users who prefer prepaid phone cards to two-year contracts. AT&T spokesman Mark Siegel wrote that he had no comment on the matter.

But the risks for customers are real.

Last month, customers with third-party unlocked iPhones using a similar, little-known company called Simple Mobile, a competitor to H20 that uses the T-Mobile network, crashed their iPhones when they updated to the new IOS 5 operating system, according to Soto.

“T-Mobile people are screwed,” said Soto. There is currently no fix; T-Mobile users cannot update their third-party unlocked iPhones, and there is no viable way of reverting to a previous operating system, according to Soto. When a young European man who had updated to IOS 5 on Simple Mobile came in for advice, Soto didn’t have any to offer. There is no guarantee that something similar cannot happen with the H20 network.

If so, Gonzalez noted, “H20 customer service is not the best.”

Last month, when this reporter tried to reach H20 for comment, the online “live chat” help service did not load, questions posed via e-mail and through an online request form received no response, and calls to customer service on three occasions were disconnected after 20 minutes on hold, before ever reaching a human being. Jacky Soto, another Compupod employee, said the wait is typically one to three hours.

However, to many the savings appear to be worth the risk.

An AT&T iPhone with 2 GB of monthly data and a mandatory two-year contract costs $114.99 per month, according to AT&T’s website. H20 provides the same services for $60 per month (until earlier this month, H20’s plan included unlimited data).

For two years, the savings equals $1,319.76.

For some Mission residents, especially those with family and friends in Latin America, the chance to make cheap international calls is the real draw. With the H20 unlimited plan, customers get $20 credit in international calls, which can range from less than an hour on the short end (e.g., El Salvador, Guatemala) to more than 10 hours (Mexico), depending on the receiving network. Once that time is used up, customers can buy more credit from an H20 provider or online.

With AT&T, 10 hours of telephone calls from an iPhone to a cellular phone in Mexico using the “Mexico — Add-On to Voice Plan” at 25 cents per minute and a monthly $4.99 fee costs nearly $150 per month on top of the $100-plus national contract.

And there is another perk on H20: Stolen AT&T phones with passcodes can easily be unlocked, and the underground market price is much cheaper than a $500 factory-unlocked phone from Apple (the new unlocked iPhone 4S starts at $549 on Apple’s website). Most people who bring in iPhones to Compupod either bought them used online from eBay or Craigslist or got them on the black market.

“I got it on the street,” said Mehdi Elkhei, a student at City College who purchased his phone for $100. He, too, came to Compupod to sign up for H20 so he could talk with his family in Morocco cheaply. Soto unlocked the used iPhone for Elkhei before signing him up.

With the recent spate in iPhone thefts, Soto said there are probably quite a few Mission residents on H20’s network who are using stolen phones. When a customer brings in a used or stolen iPhone to Compupod (there is no way to tell the difference, according to Soto), they will unlock it for a fee: $45 for an iPhone 4.

Gerardo Orozco, another customer, said in Spanish that he bought a new unlocked iPhone from Best Buy for about $800 a year ago. But he admitted he would return tomorrow to sign up his girlfriend’s iPhone 4, which he purchased from “a friend” for only $100.

Many used iPhones on the market are not stolen. When iPhone users upgrade to the latest version, they often unlock their old phones and sell them on eBay or to resellers like Compupod. A used iPhone 3GS goes for under $200 on eBay, and a used iPhone 4 for under $400.

No matter how the phone is acquired, H20 is substantially cheaper than any authorized carrier. The question is whether the customer is willing to accept the limited features and risks of using a little-known carrier.

Puente, who arrived at Compupod with a used iPhone 4 given to her by her husband, seemed convinced. She didn’t sign up on the spot — she needed to think about it — but admitted she’d probably return tomorrow and join the ranks of iPhone users, while paying close to half-price.

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  1. In addition to wrongly placed encouragement of stolen iPhones, the quotes about T-Mobile iPhone users being out of luck with iOS 5 are untrue for legitimate Apple unlocked iPhones.

    It’s only when the phones have been unlocked by some third party that users might find them unusable with current iOS updates. Since this has always been the cat and mouse game, smart iPhone users buy the Apple unlocked phones so they can use them with any GSM cell service provider they would like.

    This ‘article’ needs more appropriate fact checking.

    1. Thanks Richard,
      I have clarified that third-party unlocked iPhone users on Simple Mobile encountered the problem when updating their operating system.

      Regarding covering circumstances that encourage iPhone theft – this is the reality in the Mission, and I feel worth bringing to light. Compupod is not doing anything illegal. Indeed, I find it interesting that Apple and/or iPhone authorized carriers have not done more to prevent reactivation of stolen iPhones, it has been a hot topic lately: and
      Matt Sarnecki

  2. Wow, this is so wrong. Will Missionlocal be promoting other ways to acquire/use stolen goods? Know any good auto chop shops? Fake passports? Liquor stores that don’t check ID’s?

    Stay classy missionlocal

  3. Hmm. Well, there’s nothing wrong with unlocking a phone once Apple’s warranty is up, no matter what AT&T tells you. But there is something wrong with buying stolen goods, especially when people are being hit over the head in your neighborhood. Used iPhones cost more $100 unless you’re buying them from a real friend.

    People wanting to make cheap international calls can buy very cheap credits from Skype and Google Voice and use the Skype app on the phone over wifi.