While Apple's iPhone 2.0 software announcement last week includes vastly improved security protections, questions remain over whether it will meet the demands of large corporations, such as banks, that must meet rigid government standards for data protection.

Apple's own description of the 2.0 release, set for June, details the security of using both Microsoft Corp.'s Exchange ActiveSync for push e-mail and data wipe, as well as a Cisco Systems Inc. IPsec VPN for data encryption when linking wirelessly to private corporate networks.

While security experts often note that bulletproof security is never truly bulletproof, data encryption is often regarded as the gold standard in many systems. While the Cisco VPN is going to beef up wireless security for the iPhone, analysts said, it still won't help against physical attacks if the device is lost or stolen, through port access.

"A VPN alone is not a complete security defense for a mobile device," said John Girard, an analyst at Gartner Inc., when asked about the iPhone 2.0 security innovations. "The majority of attacks on small devices are caused by losing control of the device, or attacks oriented on the device itself through other methods, such as reading stored data.

"I still see the biggest security risk to be the reading of information from a lost or stolen device, and at this time and even with the updated features and tools, the iPhone does not include a mechanism for encryption of all stored data," Girard added. "Third party security tools and secure applications will bring that protection, but it will be months before such tools are delivered."

One IT executive at a major bank said many bank workers want to use the iPhone, but the bank needs more time to evaluate the security innovations in iPhone 2.0 software to see if they will be sufficient to meet internal and government-imposed requirements for data protection. The executive asked not to be named, citing company policy about talking to the press.

One vulnerability outside of the VPN could be due to ports exposed on the device that could be accessed even while the VPN is running, Girard said. Executives at Bluefire Security Technologies in Baltimore demonstrated such a potential vulnerability at a conference earlier this week, showing how a small data card installed surreptitiously on a person's phone could be encoded to send data from the phone wirelessly to a third party for sniffing.

Girard's concerns were mirrored by Ken Dulaney, another Gartner analyst. Both men also questioned whether the Cisco VPN client will work with other platforms, such as those from Nortel Networks or Checkpoint. "You could have interoperabililty issues," Girard said.

In an e-mail Friday, Cisco's Tom Russell, senior director of product management for security, conceded that the Cisco VPN client in the iPhone will use Cisco protocols that connect to a Cisco device in a headquarters location, adding that "creating policies outside of established methods creates risk." Still, he said using the Cisco VPN client within the iPhone "reduces risk and does enable the iPhone as an enterprise device."

Cisco's VPN client provides "the highest level of data privacy with the most widely deployed, enterprise-class remote access VPN solution in the market," Russell added.