For techies, particularly those who like Apple products, the new iPhone 3G is starting to look nice. The current iPhone already has a mess of cool features, but Apple’s adding speed, GPS, support for Exchange, and many other features to attract new consumers, particularly business consumers.
Most importantly, the price for the entry level iPhone will be lower than less sophisticated devices, only $199.
This price is highly subsidized by AT&T, the only carrier that will officially support the iPhone. For every customer purchase, AT&T provides $300 to $400 to Apple to receive the device. This subsidy comes at a great cost to AT&T, but they’re confident that it will take only two years to recover these costs. Why? iPhone users spend more.
The average phone bill of an iPhone user is $95, almost twice the average of all other customers. If you’re an average iPhone user, you are spending $540 more per year, or $1,080 over the life of the two-year contract, for the privilege of buying an iPhone for only $199. I think AT&T is recovering quite nicely.
Would you buy the iPhone at $199? It sounds like an attractive price at first glance. But what if you had to pay your total $1,279 up front? You’d get to keep your $50 monthly plan with this option.
The good news is this lower price might mean more competitive phone prices across all cellular carriers. The bad news is the higher subsidies may be covered by higher monthly rates.
Information on iPhone subsidy from AT&T Starts Subsidy War, Scott Moritz, Fortune, June 10, 2008.