How to Downgrade iPhone 4 iOS 5.1 Baseband 4.12.01 to 4.11.08 for Possible (Future) Unlocking

UPDATE #1: Ooops… Apple is fast this time. iOS 5.0.1 is no longer being signed. Baseband downgrade to 4.11.08 is no longer possible.
Did you just update your iPhone 4 to iOS 5.1 and found out that you now have baseband 4.12.01 that can’t be unlocked? See below on how to downgrade your baseband for possible unlocking in the future.

First things first:

• This tutorial will be valid for as long as Apple is still signing iOS 5.0.1. Once Apple stops signing iOS 5.0.1, you can no longer downgrade your baseband to 4.11.08. You will get error 3194 on iTunes.
• Baseband 4.11.08 cannot be unlocked at this point but downgrading your baseband to this version increases your chances of unlocking your iPhone 4.
• You must do it now because Apple will stop signing iOS 5.0.1 anytime soon. It was still being signed when I tested this about 15 hours ago. Apple stopped signing iOS 4.3.3 just about 5 days after iOS 5.0 was first released.

Here are the steps:
1. Download and install iTunes 10.5. You will need to remove iTunes 10.6 first.
2. Download iOS 5.0.1 firmware for iPhone 4 (IPSW) directly from Apple server.

3. Put your iPhone into DFU mode (search a tutorial on YouTube).
4. Connect to iTunes and it will say that your device is in recovery mode and needs to be restored.
5. Go ahead and click shift+restore (Windows) or option+restore (Mac). Select the IPSW you just downloaded in step 2.
6. iTunes will verify with Apple server and begins restoring your device. Once completed you will need an official SIM card to activate it. You can use other tools such as TinyUmbrella to confirm that you now have baseband 4.11.08. If you don’t have an official SIM card, don’t worry. As long as you’re on 5.0.1 you’re good.
7. Now download or build custom iOS 5.0.1 from here. (Note: files are hosted in FileFactory which may require premium membership, they changed their download policy after MegaUpload was shut down, sorry!)

8. Download latest redsn0w from the Dev Team’s website. Start redsn0w, go to Extras > Pwned DFU. This allows your iPhone to accept custom firmware. If you don’t do this, you will get error 1604, 1600 etc.

9. Connect your iPhone to your computer.
10. Click shift+restore (Windows) or option+restore (Mac) and select the custom iOS 5.0.1 IPSW you just built or downloaded.
This time your baseband will be preserved at 4.11.08 while running on iOS 5.0.1.
Again – do it now because once Apple stops signing iOS 5.0.1, you will be stuck on 4.12.01 with no unlocking in sight, possibly for a very long time. Also read here on why you shouldn’t update to iOS 5.1 yet.