Louis Ashner ran a brisk business buying used phones from Americans and reselling them in China. But one day in early October, it just stopped.

Mr. Ashner, who owns Side Street Technology Inc. in Baton Rouge, La., said he was suddenly unable to "unlock" AT&T Inc. versions of the iPhone in bulk so they could work on other networks.

He doesn't know the cause, but he knows the effect. No one in China wants an iPhone that only works on AT&T. His business collapsed and is in the process of closing its office and liquidating inventory at a loss.

"The market is gone," Mr. Ashner said, who said he was on track for $1 million in revenue this year. "We are closing up."

Business owners throughout the U.S. used-smartphone market are reporting the same problem, and like Mr. Ashner none of them knows exactly what went wrong.