I was reading the usual tech sites and came across
over at TUAW. It was about using an O2 SIM card (not the U.K. phone company, the U.S.A.
one - which is now called H2O) in the iPhone 4. All you had to do was activate the SIM,
then cut it down to fit into the iPhone's micro SIM card tray and it just worked.
Perhaps you received an iPhone as a gift and don't want to sign a two year contract with AT&T, or maybe you just aren't much of a talker but still like smartphones, or maybe you don't live in an area serviced by AT&T. Whatever your situation is, you have other options. You can get data using an O2 SIM (now called H2O, they resell AT&T service). However the service plan requires a voice plan and comes with limited data.
If you decide to unlock your iPhone then you can use Simple Mobile or T-Mobile. You can get data with both of these companies as well. Simple Mobile resells access to T-Mobile's network so you will not receive 3G service using an iPhone. I purchased a Simple Mobile SIM from their website here. They also have a network of resellers in various retail stores so check their site. You can get data, tether, use MMS and FaceTime on Simple Mobile and T-Mobile. Simple Mobile will require you to pay every month: you can't keep your minutes over a long period of time like you can with H2O or T-Mobile pre-paid accounts.
It is possible to restore the iPhone with an inactive AT&T, Cingular, GoPhone, H2O, and a newly purchased O2 SIM. they will activate the iPhone. You can purchase airtime recharge cards at most convenience or electronics store. You must purchase an AT&T GoPhone SIM directly from an AT&T store so that it will work with your iPhone. If you purchase one bundled with a phone it most likely will not work.
I purchased an O2 pre-paid SIM card at Best Buy. You can see their site here.
The next step is to cut your SIM down to the size that the iPhone 4 will accept. T-Mobile offers micro SIMs (with a 2 year contract) here. You can do make your own micro SIM one of two ways: cut it by hand using the original iPhone 4 SIM as a template or purchase an automatic SIM cutting tool. I have personally done this both ways.
To cut it by hand take a look at this guide that PlanetBeing (from the iPhone Dev Team) discovered. This method works, but it's nerve wracking cutting the SIM card. My advice is to cut a little at a time. You can always take more material off, but you can't add material back to the SIM.
The iPhone 4 (and the iPad) use a micro SIM card. It's a new thing in the U.S. so it's not in wide use. Since the iPad and the iPhone 4 were released, a few companies have popped up that sell tools to automatically cut down full size SIMs into the micro SIM format. Here is one site (it took 30 days to arrive), and here is another. This one took 45 days to arrive from Hong Kong. Both units are identical with the latter having the Noosy logo on it. They are both very sturdy devices that cut the SIM perfectly. Both come with two adapters to allow the micro SIM to function as a full size SIM card. However, they do cut the SIM so well that you can easily place it back into the card it was cut from to use it again as a full-size SIM.
There is a Wiki that lists (based on country) which pay as you go SIMs are available for your iPhone.