Cannot activate used iPhone 5 - is it blocked somewhere?

Question

My company had a branch office in Japan which recently closed. Among equipment in the office were several iPhone 5 devices, one of which was the loaner I used while in country.  We canceled the contract with the carrier and (according to them) are paid in full, so I would like to activate that iPhone 5 in the USA to use as a touch and for APP/iOS testing purposes. 
I've reset the phone and updated to 7.1.2 and when I try to activate over WiFi, I get a message that "Could Not Activate iPhone. Your iPhone could not be activated because the activation server is temporarily unavailable. Try connecting your iPhone to iTunes to activate it, or try again in a couple of minutes."
So, I tried to activate while connected to iTunes on both a PC & a Mac (both running current iTunes - 11.3) on different internet connections.  Both give me the same message - "We're sorry, we are unable to continue your activation at this time. Please try again later, or contact customer care."
I've checked with the carrier (au/KDDI), who confirmed there is no problem on the account and that the phone should be able to be activated with the original SIM (which is in the phone).  I'm not sure who else may have used the phone while visiting - maybe they connected it to their iCloud account or something?  I'm struggling for answers since anybody who could have answered my questions are no longer with the company.
I guess I'm wondering who would be able to tell me what the problem is with activation - if there's an issue, is it an Apple thing or a carrier thing? If there's a block somewhere,
I tried calling Apple support, but since the phone isn't in warranty status any longer, they didn't want to help me very much.

Answer 1

When I turn on the phone, it brings me to the Hello screen, then I connect to WiFi (I have no service with the Japanese provider in the USA - the phone just says Searching...), and the phone goes off and tries to activate himself.  After a few minutes, it comes back with the "Could Not Activate iPhone" message.  I cannot get far enough with the phone to go into the Settings menu.
I've had some correspondence with the provider (au/KDDI), and they confirmed that they will not unlock the phone to be used with another carrier, but they do support it being used on WiFi as a glorified iTouch, which is what I'm hoping to do.  They also confirmed there are no billing issues with the account.
I guess what I'm trying to understand is if the carrier would block the phone from activation for some reason or if that's an Apple thing.  Or both?  I would imagine the carrier could disallow the phone to be used on its network (stolen or whatever), but would the carrier have the ability block the device from being activated with Apple?