iPhone subsidies make for confusing prices

John Shinal · July 1, 2008 · Short URL: https://vator.tv/n/2d0


It's not easy to put a simple price on a mobile device when you're trying to use subsidies to woo new consumers AND satisfy Steve Jobs.

That's what consumers are now finding out as AT&T and Apple have released more details on the pricing plan for the upcoming 3G version of the iPhone. 

AT&T said today that it will eventually make available versions of the new 3G iPhone that won't require customers to purchase a two-year calling plan. No exact word on when that option will be offered.

Those plans are mandatory for consumers who want either the $199, 8Gb phone or the $299, 16Gb versions, which go on sale July 11.

The price of being free of a contract will be steep, $599 for the 8Gb version and $699 for the 16Gb phone. 

Although people who wait and buy one of those phones will have the option to stick with AT&T on a month-to-month basis, by then there will be plenty of workarounds that will allow consumers to use the phones on other carriers' networks.

It almost seems that AT&T is holding out the carrot that if people wait long enough, they can get an iPhone and use it on AT&T's network without having to commit to a plan. 

The real losers are existing AT&T customers, who will have to pay $399 and $499 and still sign a two-year contract. 

All these numbers suggest that AT&T is willing to pay at least a $200 per phone subsidy to bring new users into its network.

But it's willing to pay even more to make sure iPhone user sign a contract. That shouldn't be a surprise given that the cheapest calling plan, for 450 minutes, costs $70 a  month -- without text messaging.  Add in another $20 for unlimited texting and multiply by 24 months gives you $2,160.

A teardown by the research firm iSuppli estimated that it's costing Apple $173 to make each of the new 8G iPhones, which would make the AT&T subsidy $227. That's a nice bit of cash to Steve Jobs to help him seed the mobile phone market for his device.

For the initial version, Apple had to charge more for the iPhone, agreeing to take part of the haul from the calling plans rather than having the device subsidized. But the two companies quickly changed that plan, with AT&T boosting its subsidy so Apple could drop the price and sell more iPhones.

Those who paid $399 out the gate were simply left fuming. 

With the new cost structure, it looks like Apple may be giving up some revenue down the road -- since the calling plans are worth much more than the phone over two years -- in exchange for getting more up front.

And AT&T gets what it wants -- more new subscribers locked into expensive, two-year calling plans.

All that's required is another iPhone buying frenzy. Stay tuned for July 11. 

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