AT&T to subsidize cost of new iphone

[liquidh2o]

AT&T to cut the price of Apple’s new iPhone
By Scott Moritz, writer

AT&T (T) is planning to put some extra shine on the even sleeker new Apple (AAPL) iPhone.

When the 3G iPhone is introduced this summer, AT&T, the exclusive U.S. iPhone sales partner with Apple, will cut the price by as much as $200, according to a person familiar with the strategy.

AT&T is preparing to subsidize $200 of the cost of a new iPhone, bringing the price down to $199 for customers who sign two-year contracts, the source says. Apple is expected to have two versions of the new iPhone, an 8-gigabit-memory and a 16-gigabit-memory model with price tags widely expected to be $399 and $499.

AT&T and Apple declined to comment.

At $200, the iPhone would be within reach of a much wider consumer market and give AT&T a strong magnet to pull lucrative customers away from rivals like Verizon Wireless (VZ), Sprint (S) and T-Mobile (DT). The $200 rebate or subsidy would be limited to AT&T customers and not available through Apple’s stores. The new iPhone sold by AT&T will likely be locked or programmed so buyers can’t take the cheaper iPhone to another phone service.

Subsidies of $100 to $200 are common in the U.S. phone market, where people buy their phones from their carriers. Lowering the consumer cost of the phone to win two-year subscribers is considered a small investment with a quick payoff. The average monthly wireless bill is around $50, so a phone company can recoup the phone’s cost in a matter of months.

The average iPhone user however, runs up a $100 tab each month due to the higher priced data and calling plan. This would give AT&T an even quicker payback on its $200 outlay. But AT&T doesn’t get to keep all the money it collects from its iPhone users. Unlike most other phonemakers (but like BlackBerry maker Research in Motion (RIMM)) Apple has a revenue-sharing arrangement that requires telcos like AT&T to pay somewhere between 9% and 25% of the money collected each month from iPhone users.

The new iPhone is expected to be released on the one-year anniversary of the original iPhone debut June 27 or thereabouts. A few weeks prior to that launch, Apple is planning to stop supplies of the older model iPhone, according to the source. This will help clear out inventory and stir up demand for the new device. It will also attempt to avoid the public relations pratfall Apple made when it cut the price of the iPhone without warning last year. To soothe the ire among people who bought the iPhone just before the sudden markdown, Apple issued store credits.

A few details about the new iPhone have also been confirmed by the source. The new iPhone will be 2.5 mm thinner than the 11.7 mm original. The iPhone will also have a GPS chip for navigation and other location-based services.

Source: http://techland.blogs.fortune.cnn.co...es-new-iphone/

If true this makes the iphone attractive to a greater segment of the population.

[Grimace]

Just saw this. Wow! Maybe Apple can find a loophole that allows them out of the exclusivity contract!! I want an 8 "gigabit" iPhone!

[Yankees 4 Life]

holy crap, thats amazing

[Mikey B]

Apple will NEVER let them do that!

[nineteentwelve]

Originally Posted by Mikey B

Apple will NEVER let them do that!

In all fairness, I don't think Apple would give a ****. AT&T will be paying their share, as will the customer. Apple wouldn't lose a cent. They'd still get the same amount of money for the iPhone, and maybe a bigger share of the AT&T plan.

I hope O2 do this in the UK. I'm not holding my breath though.

[Mikey B]

Originally Posted by nineteentwelve

In all fairness, I don't think Apple would give a ****. AT&T will be paying their share, as will the customer. Apple wouldn't lose a cent. They'd still get the same amount of money for the iPhone, and maybe a bigger share of the AT&T plan.

I hope O2 do this in the UK. I'm not holding my breath though.

I guarantee that Apple demanded that AT&T hold a certain market value for the iPhone (ie. the same as the Apple Store). They are in the retail business as well as being a wholeseller. I find it hard to believe that they would sell to AT&T at a low enough cost to justify such a hefty price cut. Do you really think AT&T is going to eat 50% of the price of a new iPhone? They would have to get it at a proportionately lower cost for that to make any sense. And I just don't see Apple allowing such cannibalization of their retail outfits.

Just my 2 cents...

[BenRoethig]

Originally Posted by Mikey B

Apple will NEVER let them do that!

This is one area where Apple is not in the drivers seat. AT&T is the only real option and everyone involved knows that. T-mobile has less than half the customers and coverage gaps and the rest of the major carriers are CDMA.

[asdavis10]

Originally Posted by Grimace

Just saw this. Wow! Maybe Apple can find a loophole that allows them out of the exclusivity contract!! I want an 8 "gigabit" iPhone!

Someone can correct me if I'm wrong, but I believe that the exclusive contract with AT&T is for the current iPhone which is version 1.0. The new iPhone will be version 2.0 and will include newer functionality (GPS). If it has newer functionality that doesn't come in the form of an updated OS, they may be able to get other carriers to pick it up. Apple will eventually have the iPhone on most (if not all) major US carriers. That is the only way they will dominate the market. Sprint and Verizon both want the iPhone. Their "iPhone Killers" just don't cut it and they know it.

Originally Posted by Mikey B

Apple will NEVER let them do that!

Why not? AT&T is is paying for this out of their pocket. They know they will get the money back eventually over the life of your contract. Subsidies like this may disappear if Congress passes that new bill saying that companies cannot charge customers for opting out of their contract. The fee you have to pay is the company's guarantee that they get the money back on the discount they gave you on your equipment when you first signed up. But Apple won't care. They're still getting their money (from AT&T instead of you).

[mccldwll]

Originally Posted by asdavis10

Someone can correct me if I'm wrong, but I believe that the exclusive contract with AT&T is for the current iPhone which is version 1.0. The new iPhone will be version 2.0 and will include newer functionality (GPS).

You're wrong. That's not how things work in the grownup world. It's chess, not checkers. 1.0 vs. 2.0 is irrelevant. The contract terms are whatever the legal teams agreed to originally, and everything was on the table. There are no loopholes you can drive trucks through.

[cameronjpu]

Originally Posted by asdavis10

Someone can correct me if I'm wrong, but I believe that the exclusive contract with AT&T is for the current iPhone which is version 1.0.

You're wrong. Might be the dumbest thing I've heard in a while....

[kdarling]

Originally Posted by asdavis10

Someone can correct me if I'm wrong, but I believe that the exclusive contract with AT&T is for the current iPhone which is version 1.0.

Okay, you're wrong

Or at least, no one has any real knowledge of their contract. But ATT said last year to expect them to get more iPhone models, so it would seem they covered the obvious.

Apple will eventually have the iPhone on most (if not all) major US carriers. That is the only way they will dominate the market. Sprint and Verizon both want the iPhone. Their "iPhone Killers" just don't cut it and they know it.

I think the other carriers could care less if they got the iPhone... they're selling millions of competing phones just fine. For that matter, ATT is also selling lots of other smartphones.

Apple goofed big time by going exclusive with ATT. They gave a huge five year breathing space to all the other phone makers, while providing lots of free publicity to drive all smartphone sales.

We're also going to see a small flood of VGA (and higher) 3G phones with nice touch interfaces this year. This will heat things up. Going to be very interesting.

[Zwhaler]

Originally Posted by Mikey B

Apple will NEVER let them do that!

I hope Apple does let them, since in the long run it will put more iPhones in the pockets of consumers.

[edoates]

Originally Posted by Mikey B

Apple will NEVER let them do that!

Apple can only suggest a price: Manufacturer's SUGGESTED Retail Price; they cannot dictate to a retailer what to sell the phone for, nor can they pull a product if it is sold "too cheaply." They can prohibit advertising that price (Rickenbacker does that with guitars for example). As long as ATT comply with their contract with Apple, the price can be whatever ATT wants. It will hurt sales at Apple stores if ATT stores sell it for less and the discount happens with the sale, not later on as a rebate when you buy a two year contract.

$299? I'm in.

Eddie O

[benmrii]

Originally Posted by edoates

Apple can only suggest a price...

As much as I hope you are correct, there is nothing that says their contract agreement with them does not require certain pricing restrictions such as subsidizing the cost or being within a certain amount of Apple's price.

[avaloncourt]

How would this reflect on us who already have a phone? Granted, we paid full boat for our first one but would they let us subsidize for a replacement 3G? They already have us locked into 2 year contracts of which nobody is yet half way through. Just a curiosity.

[newyorksole]

OMG this seems too good to be true! So this means everyone will be lining up infront of AT&T stores instead of Apple stores right?

GPS and 3G !!

But why just 8GB and 16GB? The Apps store is going to call for more memory, no? Well I guess I'll just get the 16GB and be overly satisfied with my new phone haha.

[impact_blue]

Originally Posted by avaloncourt

How would this reflect on us who already have a phone? Granted, we paid full boat for our first one but would they let us subsidize for a replacement 3G? They already have us locked into 2 year contracts of which nobody is yet half way through. Just a curiosity.

Another early adopters fee

[Digital Skunk]

Originally Posted by Grimace

Just saw this. Wow! Maybe Apple can find a loophole that allows them out of the exclusivity contract!! I want an 8 "gigabit" iPhone!

HERE HERE!!!!

I like that idea. Even now though I am considering buying an iPhone even on AT&T's network once my contract with Sprint is up. Hopefully by that time the iPhone is as stable and feature filled as it can be and maybe AT&T will offer insurance for it through Asurion.

[parapup]

.. that no one reduces prices of anything that is exceeding the sales expectations of the seller..

I don't understand one thing however - Any one buying the iPhone from anywhere in the US has to get AT&T service any ways (at least Apple and AT&T think that way) - so what makes AT&T offer a rebate if you buy the iPhone + 2-yr service from them?

May be it's a smart move to get business from the vast percentage of unlockers that currently give their money to T-Mobile?

[StuPidQPid]

At $200, the iPhone would be within reach of a much wider consumer market and give AT&T a strong magnet to pull lucrative customers away from rivals like Verizon Wireless (VZ), Sprint (S) and T-Mobile (DT). The $200 rebate or subsidy would be limited to AT&T customers and not available through Apple’s stores. The new iPhone sold by AT&T will likely be locked or programmed so buyers can’t take the cheaper iPhone to another phone service.

Wow, Fortune Magazine is a pretty reputable source!
Interesting that the $200 rebate/subsidy would be limited to AT&T customers, but not be available through Apple's stores.
To me this can only mean one thing, that those 3G iPhones being sold at the Apple Store or through Apple will be unlocked.
That would leave me with an interesting dilemma...

[nickspohn]

Man if we can actually get around that rebate and then sell unlocked iPhones on eBay

Chaaaa CHING

And i'm glad CNN also agrees with my prediction of June 27th.

[rjohnstone]

Originally Posted by StuPidQPid

Wow, Fortune Magazine is a pretty reputable source!
Interesting that the $200 rebate/subsidy would be limited to AT&T customers, but not be available through Apple's stores.
To me this can only mean one thing, that those 3G iPhones being sold at the Apple Store or through Apple will be unlocked.
That would leave me with an interesting dilemma...

What dilemma would that be?
AT&T has the only 3G GSM network in the US right now.
T-Mobiles 3G network (when operational) will operate on a different frequency, so unlocking to run on T-Mobile will not be possible.

The only thing would make this be workable is if it ships with a multi band 3G chip.

[StuPidQPid]

Originally Posted by rjohnstone

What dilemma would that be?
AT&T has the only 3G GSM network in the US right now.
T-Mobiles 3G network (when operational) will operate on a different frequency, so unlocking to run on T-Mobile will not be possible.

The only thing would make this be workable is if it ships with a multi band 3G chip.

Oh, didn't realize that. Thanks!
Will that mean Apple will have to ship iPhones with different frequency 3G chips in different countries? A multi band 3G chip would seem to make more sense.

EDIT:
Actually I just checked and the Broadcom 3G chip (likely to be in the iPhone) incorporates a multiband transceiver - at least according to Arstechnica.

Arstechnica Article

[kdarling]

Originally Posted by StuPidQPid

Actually I just checked and the Broadcom 3G chip (likely to be in the iPhone) incorporates a multiband transceiver - at least according to Arstechnica.

The latest and most likely speculation is that the new iPhone will use the Infineon S-GOLD3 chip, not the Broadcom.

As for subsidies, it was Apple that forbid them in the first place. One of the many reasons Verizon (and others) said no. Can't see why they'd change that, though it'd be nice.

[gloss]

Originally Posted by kdarling

The latest and most likely speculation is that the new iPhone will use the Infineon S-GOLD3 chip, not the Broadcom.

As for subsidies, it was Apple that forbid them in the first place. One of the many reasons Verizon (and others) said no. Can't see why they'd change that, though it'd be nice.

Doesn't seem to have stopped several European carriers.