Ok. So now I think I have cracked this and really understand what is going on.
As was highly publicized Facetime is not available on Middle East phones. I have a UK unlocked iPhone 4 and had Facetime running on it for a while, but recently lost that functionality. This drove me to try to find out exactly what is going on and how Facetime is being blocked or allowed:
1. Phones acquired from the Middle East operators have a specific model number that looses full Facetime functionality when upgraded to 4.1. Basically the "regions" file contains a NOVOIP key that kills Facetime and makes the Facetime toggle switch in Phone Settings disappear. That's the easy part :-)
2. Facetime activates on the phone by sending an SMS to a UK number. Simply put, every time you try to activate Facetime the phone will send a background message to a UK number that includes things like IMEI, Mac address etc. Apple will respond back with an acknowledgement that confirms activation and associates the phone number (obtained from the SIM) with the actual phone as identified by serial number, IMEI and Mac address.
3. The UK number seems to be global for all iPhones sold outside the US. For US iPhones, there is an AT&T number. That number is stored in the carriers bundle for each operator. I have validated that for operators in the Middle East the carrier file actually correctly includes the UK number.
4. Having lost the Facetime activation (basically getting a stuck waiting for activation message), I started my investigation and can confirm the following facts.
A. Sending a blank SMS to the UK activation number from Mobinil does not work. The message is sent, but no delivery report comes back.
B. Sending a blank SMS to the UK activation number from Vodafone Egypt does not work. Same as above.
C. Sending a blank SMS to the UK activation number from an Etisalat Egypt number works and the Apple server responds back with an error code
5. Based on the above I can draw the following conclusions:
A. Apple is not blocking the activation SMS from countries in the Middle East (since it's in the carrier file).
B. Both Apple partner operators seem to be blocking the outbound SMS.
So what this looks like is that the operators are playing a funny game here. They took matters into their own hands trying to take away the advantage of factory unlocked phones running Facetime by blocking the activation SMS.
So what will I do next?
1. Try activating Facetime using my Etisalat SIM. Just need to cut it when I get back home :-)
2. Try editing the carrier bundle to send the Facetime activation SMS to another phone to try to decipher the activation parameters.
3. Investigate options of using an intermediary number to relay the SMS to get around the operator block on the activation SMS
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