Great coverage from the NYT tech blog. The price of the iPhone didn’t decrease by $200. It went up by at least $120 a year …
The biggest news from Apple is what Steve Jobs didn’t say: It has completely changed the basis of its deals with AT&T and other wireless carriers.
According to a press release from AT&T, the carrier will no longer give a portion of monthly usage fees to Apple. Instead carriers will pay Apple a subsidy for each phone sold, in order to bring the price from $399 down to $199 for the 8 Gigabyte model. The company did not specify the amount of the subsidy. Subsidies of $200 to $300 are common in the industry.
What is more, consumers will now pay $30 a month for unlimited data service from AT&T, compared to $20 under the plan introduced last year. So even though the phone will now cost $200, consumers will be out more cash at the end of a two-year contract compared to the previous deal.
Unlimited data service for business users will cost $45 a month…
… For Apple, this move to getting all its money up front has several advantages. By using the same economic model as every other cell phone maker, it makes it easier to bring the phone to carriers in every corner of the world.
It also should help insulate Apple from the cost of people who buy iPhones and unlock them to use on carriers that don’t pay Apple the monthly fee. Now Apple will get its money, say $500, up front and it no longer has to police what people do with them. Whether Apple will still keep penalizing users who unlock their phones is one of the many questions that remain to be answered.
I preferred the clarity of paying for hardware and data services separately.
On the plus side this makes it easier to replace your iPhone with every contract termination.
On the minus side when you have to replace a lost or broken iPhone you’ll be paying out at least $500 (as is true for all other cell phones in this class).
I wonder if the new pricing model will make it easier to sell the iPhone into corporate accounts ...
Update 6/12/08: It gets worse (emphases mine)
More on using complexity as a weapon.
...SMS messages are no longer included in the data plan either, so you'll have to pay extra for them. Previously, the data plan included 200 SMS messages per month. AT&T's Messaging 200 plan, which includes 200 SMS messages, costs $5 per month, so it would seem likely that the iPhone 3G's SMS plan would be similar...... What does bother me about all this is how both Apple and AT&T are making a big deal about the iPhone 3G being cheaper, Apple with the "Half the price" tag line and AT&T with its "$199 Starting Price Significantly Expands Mass Market Appeal" line in the press release, along with the bare-faced statement that lowering the initial price will "accelerate subscriber volumes." That initial purchase will indeed be cheaper, but anyone who doesn't take the higher monthly fees into account is either being deceived or is just plain stupid. I know it's standard marketing practice to take advantage of the math-challenged with tricks like this, but it still feels underhanded.
Update 7/3/08: Current AT&T customers don't get the $200 discount on new phones. So for a current AT&T customer, the two year cost of a 16GB iPhone hasn't increased by $160, it's increased by $360.