UPDATE: Hackers Reveal How To Turn IPhones, President Into Modems

Hackers have designed guides and programs for turning Apple Inc.'s (AAPL) iPhone and Palm Inc.'s (PALM) Pres into Internet modems, a function many smart phone owners want but U.S. mobile phone carriers have been reluctant to allow.

As of Thursday, instructions and software for using iPhones as modems had popped up on at least half a dozen Web sites, including the popular Gizmodo gadget blog and Germany's iPhone-notes.de. Similarly, guides for turning the Pre into a modem have also appeared on the Web.

The function, known as "tethering," takes advantage of a smart phone's always-on Internet connectivity. When the smart phone is tethered to a laptop, a user can surf the Web via the smart phone's connection.

The interest in freely "tethering" iPhones and Pres underscores the slow response by networks to growing demand for the function. Neither AT&T Inc. (T), which supports the iPhone, nor Sprint Nextel Corp. (S), which supports the Pre, have authorized tethering.

Critics say the U.S. carriers' reluctance to support tethering is confounding, particularly because the two carriers both support the service for any number of other devices, including the BlackBerry from Research In Motion Ltd. (RIMM). The service costs up to $60 a month.

Analysts say one possible explanation for the different treatment could be the usage habits of iPhone and Pre owners in the U.S. Because the devices are built specifically for surfing the Web and downloading software, carriers could be concerned tethering would cause a spike in data traffic over the systems, something that might choke the networks and damage the experience for others, they say. By contrast, BlackBerry owners tend to use less taxing functions, like email, that are unlikely to clog the network.

"IPhone users are particularly active in using the data features of their device," said NPD Group analyst Ross Rubin.

AT&T spokesman Mark Siegel said the company would offer tethering in the future, but declined to say when. A Sprint spokesman said tethering is currently not part of the array of data plans offered to Pre owners. He wouldn't comment further.

Already, carriers have gotten a taste of the strain spikes in mobile data can cause.

In May, AT&T's network in Austin, Texas, was overwhelmed by SMS messages, tweets, emails and other wireless data as thousands of iPhone-toting music fans descended on the city for the South by Southwest Festival. AT&T had to quickly buttress the network with additional gear amid complaints about slow Web browsing and dropped calls.

AT&T's Siegel said the company was investing in its wireless network and is working to double its maximum speed by 2011. It is also working on a next-generation network that would double its capacity.

-By Ben Charny, Dow Jones Newswires; 415-765-8230; [e-mail]