AT&T Subsidizing iPhone 3G for $325?

[MacRumors]

Barrons reports on a recent analyst note from Oppenheimer which claims that AT&T is discounting the iPhone by $325 to reach its $199 (8GB) and $299 (16GB) prices. This means the actual unsubsidized iPhone cost would be $524 and $624, respectively.

The higher subsidy rate for the iPhone, he says, “reflects AT&T’s faith in the iPhone’s ability to attract new subs and increase ARPU.” And he also says it has positive implications for Apple, since it effectively results in a playing field that is tilted in their favor. “Rivals must scramble to hit a lower, less profitable price point,” he writes.

The analyst also reports that AT&T is paying Apple an additional $100 per phone for iPhones sold in Apple stores for a total commission of $425. No reasoning for this additional commission is given.

Based on this higher-than-standard subsidy, it is believed that Apple's revenue for the iPhone 3G is comparable to the original iPhone where Apple received a portion of the monthly subscriber fees. This agreement has been modified with the iPhone 3G with the substitution of an upfront subsidy rather than a monthly payment.

The large amount of the subsidy introduces some interesting issues for some AT&T customers who are trying to upgrade to the iPhone 3G. Little official information has come out of AT&T or Apple regarding rate plans or eligibility to qualify for the subsidized iPhone price. It seems clear that existing iPhone customers will be able to buy a fully subsidized iPhone 3G, but the answer for current non-iPhone AT&T customers remains murky. Known and rumored information for upgrade eligibility has been consolidated in this guide.

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[zephead]

Ahhhhh!! More bad news for AT&T customers already in another contract (i.e. me).

Hopefully all of these are just bad rumors and everyone can buy the iPhone at $199/$299 and restart their contracts.

[noodle654]

$625...wow that is steep. I can't wait for it to come out, the wait is killing me!

[Rocketman]

This does give unusual insight into the amount an individual store is allocated in the sales process, whether Apple or AT&T, it seems the store itself gets $100 and gets it up front.

Rocketman

[DN7335]

Ouch...though I fully expected at least $500 for an 8GB iPhone 3G. Still hoping that they will sell the iPhone at 199/299 for everyone, but not really expecting this to happen.

[sterlingindigo]

Brilliant move for Apple. Gunning for number 1 and I think they will make it.

[Eduardo1971]

I'm awaiting for AT&T to post the cost for their iPhone plan. I remember that about 1-2 months ago Apple posted the AT&T rate plan and their entry level family plan for the iPhone was around $110.00 dollars. I wonder how much it will increase for the 3G iPhone?

[gkarris]

If AT&T is shelling out that much, subsidized iPhones for current AT&T subscribers who are not really eligible looks slimmer....

[noodle654]

Wait a minute....I sold my iPhone on eBay, can I still get the subsidized iPhone? I still have the receipt and the SIM card.

[siurpeeman]

Originally Posted by noodle654

Wait a minute....I sold my iPhone on eBay, can I still get the subsidized iPhone? I still have the receipt and the SIM card.

i'd imagine you would if your at&t account is still active.

[noodle654]

Originally Posted by siurpeeman

i'd imagine you would if your at&t account is still active.

It is...I am on my parents plan and I am using my backup phone.

[gkarris]

Originally Posted by noodle654

Wait a minute....I sold my iPhone on eBay, can I still get the subsidized iPhone? I still have the receipt and the SIM card.

Current iPhone owners are eligible. The question is about current AT&T subscibers that were subsidized with some other phone...

[pacohaas]

so it will be cheaper for me to break my contract for $175 than to pay for an unsubsidized iPhone...seems strange. I'm really hoping they allow current customers an easier upgrade path from non-iPhone to iPhone, regardless of current contract. SJobs speech sure made it sound like nobody in the WORLD would pay more than $199 for an iPhone this time around.

[thadoggfather]

This is absurd if they are charging somewhere near that amount. Customers would be better off paying the $175 (pro rated) ETF and getting subsidized 2 year price

There's still hope that $199/299 is for everyone (the data plan price makes up for the cost)

I cross my fingers.

[JML42691]

I know that there must be some financial reasons behind this, but this almost sounds like AT&T is trying to make one of those "mark-up to mark down" schemes to make them sound like the good-guys in this case.

[EagerDragon]

Well this is twisting my guts.

I have a non-iPhone ATT contract. I was waiting to buy 3 iPhones and put them in a new family plan.
If All I can get is one phone at the subsidy and I have to pay the 600+ price for the other 2 iPhones, I may wait a heck of a lot longer to get that family plan and iPhones.

[gkarris]

Originally Posted by EagerDragon

Well this is twisting my guts.

I have a non-iPhone ATT contract. I was waiting to buy 3 iPhones and put them in a new family plan.
If All I can get is one phone at the subsidy and I have to pay the 500+ price for the other 2 iPhones, I may wait a heck of a lot longer to get that family plan and iPhones.

You'll get them all subsidized, but your family plan is going to be rather high.

Also, AT&T is banking on the $30/month 3G data plan for 2 years on each of those phones to help pay back the $325 subsidy...

[pcorrado]

seriously though - who is this analyst and what is his basis for these numbers? Some insider tip? Adding the cost of the parts in the phone together? I read the actual article and I just don't understand why what this guys says is taking as Apple Cannon.

[EagerDragon]

Originally Posted by gkarris

You'll get them all subsidized, but your family plan is going to be rather high.

Also, AT&T is banking on the $30/month 3G data plan for 2 years on each of those phones to help pay back the $325 subsidy...

Hope you are right. Lets see :
149 family (minutes plan)
90 (3 data plans)
10 (3rd phone in family plan)
30 (unlimited SMS for family plan)
-----
279 or so, yea expensive

[bretm]

Originally Posted by zephead

Ahhhhh!! More bad news for AT&T customers already in another contract (i.e. me).

Hopefully all of these are just bad rumors and everyone can buy the iPhone at $199/$299 and restart their contracts.

Well obviously not. If you're currently in a subsidized phone contract, well then AT&T most likely is still losing money on you and hasn't recouped their subsidy. Even those crappy little free phones aren't at all free to AT&T.

Look at it this way, AT&T recently signed you up for a 2 year contract and paid $200 for your $100 phone (total $300). If their true profit (after costs of doing business, etc.) is $10 a month for your $40/mo contract, it'll be a year and a half or more until you're even making any money for them. If they just upgrade you to another subsizided phone and lock you into another 2 year contract, they basically just lost the money from the first subsidy, because now it's going to be another 2 years until they make a dime off you. Everyone thinks that US cell companies are overpriced and are making huge profits. If one company could drastically lower prices they would. America is simply not Europe. We're a huge country with the population very spread out. Yet, everyone wants their phone to work everywhere. Well towers have to be built and infrastructure for all the sparsely populated unprofitable areas. We all pay for it. If the whole country were populated like New York, we could have more volume profits and better service and cheaper prices.

Anyway, my guess is there will be a sliding scale based on how many months you've been in the current contract. You're essentially breaking one contract and signing up for another.

But who knows. Maybe I'll be politely surprised.

Everyone

[gkarris]

Originally Posted by EagerDragon

Hope you are right. Lets see :
149 family (minutes plan)
90 (3 data plans)
10 (3rd phone in family plan)
30 (unlimited SMS for family plan)
-----
279 or so, yea expensive

That's $93/month per phone, compared to my T-Mobile bill of $65/month (granted, EDGE with 400 SMS).

At that price, you'd BETTER get those phones subsidized....

[Obi-Wan Kubrick]

I would of preferred paying more for the phone upfront then getting billed more every month.

[zeasar]

Hum... does anybody catch the change on apples iphone page?

It now saids "Phone, iPod, and Internet in one fast 3G device. Starting at $199.*" Starting...

http://www.apple.com/iphone/

[pcorrado]

Originally Posted by zeasar

Hum... does anybody catch the change on apples iphone page?

It now saids "Phone, iPod, and Internet in one fast 3G device. Starting at $199.*" Starting...

I would not worry about that too much, it says the same or something similar on the NANO page as well and simply refers to the fact that there are multiple models, the cheapest being $199.

[MacbookSwitcher]

This was a smart move. $199 is half the price of the current model.

This thing is going to fly off the shelves.

Add to the mix a software store built into every iPhone with one-touch access...Apple is going to change the game with the iPhone. Exciting times!