iphone 4s-had water damage-After that keeps seraching for cellphone network

As soon as Iphone had water contact, turned off immediately and backed on after 3-4 hours.It happend on Sunday afternoon...turned on in the evening on the same Sunday... everything works like camera, sound,wi-fi, imessag etc., except does not connect to att network. Took it to att store and tried changing the sim..no use..took to apple store..expalined had water damage ..so they tried to restore , the whole isnatllation takes place..then the intial set up screen starts showing to choose country, lanaguage, connect to wi-fi ..after that it tries to activate phone then displays message saying that phone is damaged and cannot be activated. I just wanted the phone to be same as when I took to the store so that atleast I can use it as ipod. The software seems like it is not allowing me to use the other features of the phone and only does if I am able to connect to the network. I had been to att store as well and told that I am not chaning my plan or breaking the contract but we buy a new phone and continue with att. Since as a owner of the iphone I should be able use the other features though it is not able to connect to cell phone provider network. Can some please help me to some how bypass the activation step and takes me beyond that point so that atleast I can use it as ipod. Looks like apple software is restricting the use of the other features of the iphone if not used for making calls.