Apple’s latest free iPhone software upgrade, released today, blocks Telecom XT and 2degrees users from notebook tethering - in the process derailing Telecom's half-million dollar guerrilla campaign to lure iPhone users into hopping networks.

XT and 2degrees customers who want to keep tethering (using your iPhone as a modem for your laptop via a USB cable or wireless connection) are advised to give the OS 3.1 upgrade a miss.

Only customers of an official iPhone carrier, like Vodafone, will still be able to tether after upgrading to iPhone OS 3.1.

Sydney-based Apple spokeswoman Fiona Martin told NBR that "Tethering is a carrier's responsibility. We will work with Vodafone to make sure its customers can tether. We're not doing anything else."

A spokeswoman for 2degrees told NBR: "We’ve tested iPhone OS 3.1 and it does disable tethering."

After this morning’s launch, the iPhoneNewZealand blog reported:

A quick heads-up. The new OS 3.1, launched this morning, will break tethering for XT and 2degrees users. Do not download it if you require tethering, but go right ahead and update if you don’t.

What’s happened? Apple now signs the apn’s within the carrier bundles. This means if there is no signature against the Tethering APN it will not work (all other functionality is fine though). We are working on a fix for this and as soon as we have it the bundles will be updated and we’ll let you know.

While XT and 2degrees customers can happily live without OS 3.1 - whose key feature is its ability to let you juggle iPhone Apps in concert with iTunes 9 - the tethering block is likely to be part of the iPhone OS from this point on.

XT and 2degrees iPhone users now face the prospect of being frozen in time. There one hope: that an online community like iPhoneNZ or Geekzone, which first posted links to patches that let XT users tether, will once again crack the restriction.

The tethering block is bad news for one Andrew Scott, the Kiwi ex-pat who founded the London-based Communications Venture Partners (CVP), an investment company that holds a stake in 2degrees.

2degrees investor’s iPhone turns into a brick
Recently returned and now living in Devonport, Auckland, Mr Scott told NBR he uses two handsets.

One is a BlackBerry, which is still on a UK network (2degrees does not offer BlackBerry support).

The other is an iPhone, running on 2degrees.

Telecom recently bragged that its $600 cash offer had helped lure more than 1000 iPhone users from Vodafone. The $600 rebate was introduced after Telecom's "deep discussions" with Apple apparently broke down. If all Vodafone defectors took advantage of the bounty, the guerilla campaign would have cost Telecom $600,000 and counting. Now, that may all be for nothing.

Given that it only offers 2.5G data, and at a nosebleed rate of 50 cents per megabyte ($500 a gigabyte), it’s unlikely that 2degrees has many iPhone users.

To remain one of them, Mr Scott will be wanting to stick with iPhone OS 3.0.

More on today's launch:
Steve Jobs: I now have the liver of a 20-something person who died in a car crash
Apple brings back the LP