The first time an iPhone on a Global System for Mobile Communications network starts up, it checks for a SIM card to activate the device. After successful activation, however, the iPhone can be used without a SIM card or any cellular network connection simply connecting to the Internet through Wi-Fi.
It is impossible to activate an iPhone without a SIM card installed in it. If you get a new iPhone and you want to use the old one as an iPod you can install the SIM card from your new phone into the old one, activate the old iPhone using iTunes and then move the SIM card to the new phone. You will be able to use the old iPhone for any Web-based activities through its Wi-Fi connection and you can still sync it through iTunes, but you won't be able to use it to make cellular network calls.
In the United States there are over a hundred different mobile phone companies that operate on two different network standards. The main users of the GSM network are AT&T and T-Mobile, with dozens of smaller companies using regional GSM networks. The opposing standard is based on the Code Division Multiple Access standard; the main companies that operate on the CDMA spectrum are Sprint and Verizon. Only GSM phones use SIM cards; CDMA phones have the network information coded directly onto the phone's mainboard. Phones using GSM may have their SIM card slots unlocked to be able to operate on other GSM networks.
The Federal Communications Commission has created rules under which GSM-based mobile phone carriers in the United States must unlock the SIM card slots of cell phones. At the end of a contract, or for a price, a phone can be unlocked. Additionally, military service people who are deployed may have their phones unlocked at no charge. An unlocked SIM card slot means that the phone can receive a SIM card from any GSM carrier, so any SIM card that is active with its carrier can be used to activate an iPhone.
First Time Startup
The iPhone will only check for a SIM card the first time it starts up when it's new, or the first time it starts up after it has been reset. The iPhone has a Reset feature -- found in the Settings menu under the General heading -- that can be used to delete all the content on the phone and return it to its factory settings. That way if you want to sell the iPhone or give it to someone else, the next user won't have access to all your data and passwords. Once you've reset the phone, it must have a SIM card in it to be activated. After that activation, happens the new user can remove the SIM card and use the phone normally.
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