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June 10, 2008

The Real Price Point of the iPhone 3G

Posted in: Observations

[Ed. note: The new iPhone 3G, at $199 is $40 more than the first-gen iPhone? Christian, you better explain your math.]

When I heard the official announcement about the iPhone 3G, nothing surprised me. Enterprise Apps? Check. GPS? Check. 3G? Check. Then they announced the price. Wow. $199 USD. It sounded too good to be true. For one third the cost one year ago, you can buy a shiny new iPhone with all the latest hardware goodies. Why would anyone not buy an iPhone at this price?

Then some details started to come out that weren’t announced to the frenzied keynote crowd under Jobs’ spell. Who was going to pay for this fabulous price cut? Apple? No, it will be the carriers who are now subsidizing the phone. This was a little disappointing. The iPhone was a step in the right direction — demonstrating that a manufacturer could move away from the innovation-crippling carrier subsidies. Still, the move isn’t too surprising. So will AT&T foot the bill when I buy my new super cheap iPhone? Nope. Later in the day we started to see reports that explain it all. The mandatory data plan for the new iPhones will be $30/month –- $10/month more than the first-gen iPhone. So $10 x 24 months (for the 2 year contract) = $240. So who will pay for the new cheap phone? Surprise! But no surprise. The $200 iPhone is actually $440, a price increase of $40 over first-gen prices.

In AT&T’s defense, it’s likely that iPhone users on 3G will chew up a lot more bandwidth. Still, from a consumer standpoint, buyer beware. The new iPhone is not as cheap as it appears.

And what’s the broader impact of this? Should each of those 70 countries Apple has announced expect the same kind of data-plan subsidy as Apple/AT&T in the US? What will the impact be for the adoption of data-plans abroad? See the related article: US Overtakes UK in Smartphone Mobile Web Usage.

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