The iPhone math: Pay $200 less but $240 more

UPDATE: This post has been updated to add that Apple and AT&T won't sell iPhones online, only in their brick and mortar stores, and that the AT&T data plan rate increase applies to users of the iPhone 3G.

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When Steve Jobs (does he look thinner to you?) announced the new price of the iPhone 3G Monday, the number $199 fell from the top of the screen behind him. It bounced with a satisfying "boing" sound, akin to those old ads on daytime TV.  This set of knives can be yours for only $19.99! That's right, $19.99!

Apple's marketing slogan for the new model is "twice the speed at half the price." But, as usual, there's a catch. People are starting to do the math and realizing that the new iPhone will actually cost more than the current versions -- but the payments are spread out. Like an iPhone financing plan, sponsored by AT&T.

Yes, the new iPhone will cost $200 less than it does now. AT&T, Apple's U.S. wireless partner, said it was subsidizing the cost of the phone. Thanks, AT&T!

But AT&T also announced that it was raising the price of its basic unlimited data plan for iPhone 3G users by $10 a month, to $30 (that's in addition to the calling plans, which start at $39.99 a month). So over the life of the mandatory two-year contract with AT&T, the iPhone user will pay an additional $240.

Save $200 today, but pay $240 extra over the next two years. Boing? More like thud.

The $240 translates to roughly 55 gallons of regular unleaded gasoline at current prices. But maybe no one will care. It's all about priorities, right? And surfing the information super highway, especially while on the go, is often more satisfying than driving on a regular highway.

AT&T executives said that even with the price hike in the data plan, they expect to take a hit in profits over the next two years. Carriers subsidizing phones is nothing new, although industry analysts say the size of AT&T's subsidy is higher than usual. "I'm surprised they would have to do it with such a popular product," said Douglas Christopher, an analyst with Crowell, Weedon & Co., a Los Angeles-based regional brokerage firm. "Weird."

Another interesting tidbits in the fine print: The iPhone will not be sold online, only in Apple and AT&T's brick-and-mortar stores, and buyers will have to activate the device inside one of those stores -- meaning they won't be able to resell them or try to hack the phones to use with another cellular carrier. That could hurt consumers, say people who want more openness and choice among U.S. wireless providers.

-- Michelle Quinn

Photo: Steve Jobs at the iPhone 3G unveiling Monday. Credit: Ryan Anson / AFP/Getty Images

Comments

[veggiedude]

This is no different from the PC model. Why do people buy a cheap PC over a Mac? Because up front they pay less. They can save maybe $300. Now they might not be able to do video or other fancy stuff as on the Mac but they are happy. Now, over the next 3-5 years, with operating expenses of keeping it running right (spam, viruses, spyware, plus all the Windows problems, etc), the PC person is going to pay more in the long run than if they had gone Mac.

[Stuart KD]

Of course the iPhone will cost more. The Mac cult people will dutifully and with their eyes glazed over, plop down whatever the cost...because their Führer and spiritual leader Steve Jobs says so.

Wake up you Mac zombies! iPhones are crap. It's all a high-tech swindle. Better to buy a Blackberry or the Samsung Instinct. Or better yet two cans and a piece of string.

[Paul Sibek]

Pay more?

How do you put a price or define the value on one of the best "gadgets" ever. The iPhone is a game changing design, how do you put a price on better battery, Outlook mail and faster downloads?

Total instant communication and access anywhere. How do you put a price on that.

[Linda]

I am Apple's biggest fan owning many of their products... but never the Iphone until they get rid of AT&T as their carrier and switch to Verizon. I have talked to many friends who did not listen to my advice and now HATE the phone. They can never get service. The salesperson in the Apple store tried his best, but I said "no thanks" and bought the touch Ipod which I love! I will stick to my verizon phone just to make a phone call, and I know I will not have trouble with service.

[amorcito corazon]

Pretty interesting right?

[Jeremy]

Insightful article, but the additional $240 is only additional if you already have an iPhone. The $20 hike for AT&T's unlimited data plan isn't necessarily a deal breaker if you're with a different carrier. I own a Helio Ocean and paid $300 for it a year ago. I pay about $100+ monthly for 1000 min, unlimited text messaging and data usage, so as long as AT&T offers a comparable rate plan I'll actually be in the black compared to my current deal if I get an 8GB iPhone in July.

[Steve]

I can't believe you just compared the extra $10 for 3G access to buying 55 gallons of gas. Hmm, faster data vs. pollution.

[John]

Extra costs for a cell phone? I am shocked, shocked! There are extra cost to almost everything you buy. If this is news to anyone, you have been living under a rock.

[yeah]

cool phone, but with AT&T as the wireless provider, you can count me out. verizon wireless please.

[MacFan]

I've had a 3g phone with Exchange support for 3 years now. Big deal! All of a sudden Apple does it and its game changing? Dring the red Kool Aid.

[Chris]

Actually, for those already owning a data plan through Cingular for a Blackberry or other PDA (other than the Iphone) already pay 30 dollars a month so there is no price jump there.

[Meli]

veggiedude: I switched to Mac in 2001, and back to PC in 2005. I use all freeware to secure my Windows PC and have zero issues with viruses or spyware, or even with the OS (I use both Vista and XP, at work and home in totally different network environments.) Once I had to reinstall Windows because of a corruption problem -- I had to "archive and install" the same version of OS X countless times for inexplicable reasons on all four of my Macs in that period of time. I also have no trouble doing video or other neat things on my PC -- AND I can game.
I think people need to get wise and realize that with Apple products it is no longer (if it ever really was) a matter of paying more for a superior product -- it is about imagining oneself in a certain way and dressing up like it. Emperor's Clothes.
No way am I going to buy an iPhone just for that.

But I might buy it because it's wicked cool!!!!

[Jed]

I got the first iPhone a year ago, as soon as the lines in the stores disappeared. I switched over from a Palm smartphone and Sprint. The iPhone is super convenient, and you just can't beat the quality. The email and Web are so smooth it's almost like having your laptop in your pocket. I don't know why people complain so much about AT&T, the reception is great unless you're in the middle of nowhere where no digital phone would work.

I'd pay $499 again, to say nothing of $199. As for the extra $40 for data plans, if that's what the AT&T plan costs, wouldn't you pay that the same no matter what kind of phone you used?

[George Kaplan]

Are you serious, Michelle?

Show me another cell provider which encourages the user to hack one of it's phones and run it on another system AFTER the first carrier subsidized its purchase price. OF COURSE there will be protocols in place to prevent the phones from being unlocked and used on other carriers. If you had studied, you'd know T-mobile's 3G frequency is completely different from AT&T's, and thus there is little upside to unlocking a 3G iPhone to run on T-mobile--it won't work at 3G speeds.

Furthermore, while the total cost increase over two years is $40 over the previous phone, the owner is getting (A) faster data service by a factor of 2-3 times, (B) more features than the first iPhone. The very fact that the up-front cost of the phone drops to $200 or $300 from $400 or $500 for the previous model means more people can afford the cost to enter the game. The fact the difference is meted out over two years shouldn't be burdensome to anyone.

For an exciting follow-up report, why don't you make it your personal mission to find out how many owners of the first gen iPhone would pay $1.67 per month more (that $40 difference amortized over two years) to own and use the new 3G iPhone?

I will bet a vast majority wouldn't find that price difference the slightest bit onerous.

[Ron H.]

Hey STUART KD, did you get beaten up by Steve Jobs when you were a kid? How else to explain your WAY over-the-top, anti-Apple rant? Of course you must be right. I must be the dumb zombie for loving Apple products. It has nothing to do with how well made their stuff is. It certainly can't be that they have created a lifestyle brand that actually fits into and enhances my lifestyle. I'm sure it's got little to do with the fact that my Mac, iPod, iPhone and AppleTV all work EXACTLY as they are supposed to and are seamlessly integrated with each other. Nope, it's because those of us who like Apple are just sheep, mere pawns in the hands of Steve Jobs. Dude, are you for real? I love how Apple haters greet every new product or innovation from the company with crazy rants, complete misinformation and outright lies. Like STUART KD or LINDA who claims to have talked to "many friends" who "hate" their iPhone because of AT&T. Funny how customer satisfaction surveys report something completely different. Hmmm. If you want to try and dispel the Apple mystique, have at it but try to keep your comments on the sane side of the line between balanced and loony and, please, stick to the facts. I'm sorry if it bothers some of you that the iPhone is a huge hit and, by and large, those who have them like the phone AND the service. Do I miss my Treo? No way. That clunky thing with the microscopic keyboard was a joke. Do I miss my RAZR? The reliability of and call quality on my iPhone makes me forget I even owned a flip phone. Do I hate AT&T? I don't. In the year since I switched to them I 've had almost no service or billing issues. Thanks to AT&T's rollover minute policy, I was also able to cut back on the cost of my monthly service plan. Compare that to a nightmare two years with Verizon when I went through three phones and dozens of visits to their customer "service" center. I live in Los Angeles and was blown away by the poor call quality and lack of reliability of Verizon's service. If that's "the network" their annoying ads tout, they can keep it. Their customer service, in-store and on the phone, alternated from arrogant to indifferent. Let's stop perpetuating a myth that Verizon is a fantastic wireless company. All if them are far from perfect, Verizon included. I love my iPhone. It has simplified my communications in so many ways, completely revolutionized my mobile experience and become a true all around go-to device. Yes, STU, that same piece of "crap" you deride. Shocking, huh? But don't worry...you're the smart one. It's the 8 million "zombies" who bought the iPhone that are the nut cases here, not you.

[veggiedude]

Just remember, people actually use the iPhone to browse the web. That is not the case with the Blackberry or other devices. This has been reported by sites like eBay and Google who track these things and were shocked to see the results.

Eventually the other phones will catch up, but they are not there yet. Maybe it will take Google's android to do the catching up.

[veggiedude]

Just remember, people actually use the iPhone to browse the web. That is not the case with the Blackberry or other devices. This has been reported by sites like eBay and Google who track these things and were shocked to see the results.

Eventually the other phones will catch up, but they are not there yet. Maybe it will take Google's android to do the catching up.

[Jæver]

MAC is so good at promoting, and every one just falls on there tail.
But Apple/MAC needs to do better.
Yes the phone is great looking, but what’s new, faster internet ?, is the camera much better ? why is there no video call’s ? Actually the new things is still OLD. Can I change my battery ?, No the iPhone is the same old phone, wit a faster internet, still stone-age technology, in this business
No Apple, has done this again. People like my self got the first one, and was happy with the internet and mail, but in a business you need copy / Paste, but this are you still not getting. Apple's discussion forum, is no good, all you will hear is ” the iPhone does not do this or that” so get the new iPhone 3G and get ready to get disappointed

[richard g]

More hype, less substance. It is the only thing we do better than anyone else in the world. Sell a product that is substantially lagging and already obsolete. I for one won't buy an iPhone. Apple conned eight million in to overpaying for the first generation and now they have figured out a way to separate money from those same sheep. No thanks.

[MEYERPROMOTIONS]

RON H BRAVO
I was just going to say what you just said,I will be dropping SPRINT/Treo like a HOT POTATO correction buying out of the contract. July 11th can't come fast enough for me !!!!!THAT WILL BE MY July 4th Independence Day
Apple Haters Please try to understand the FACTS iPHONE released $$$$ (PRICE) People wait in line 20+ hours to get it,it sells out in RECORD TIME
AT&T provider Time Magazine (PRODUCT OF THE YEAR) every other Phone Company
tries to copy it (I wonder why) think about it Mac haters they are all naming in the media a iPHONE KILLERS(yeah right) give me a break.
The iPHONE is "The Beatles" of phones !!!
F.Y.I. I just bought a USED Power BookG4 something to learna Mac on. It BLOWS AWAY ANY PC I HAVE EVER BEEN ON including my work Fortune 50 COMPANY PC that they provided for me . Old saying If you can't compete stay out of the kitchen

[jose]

hahahahah who ever said iphone switch to verizon yeah right thats like God trading places with Satan so he coudl go to hell verizon sucks and doesnt offer a ban dhigh enough to support the iphone thats why they have the wanna be glide and voyager

[bubba]

it is not $40 difference it is $240 dollar difference.

so $199 + $240 = $440, that is what you are paying for the 8 GB model.

What I don't like is the gimmic. I wish apple would be streight with everyone and tell the truth.

Why price gouge or switch and bait.

Why the monopoly.

I understand, maybe they think that AT&T like IBM are the first and only, but they can promote AT&T, they don't have to illiminate the others.

You know what, I was a cingular user and running away from AT&T because they are crooks, They came and bought Cingular or Cingular bought them, what ever.

I am going to switch soon out of this wedlock.

That is the reason, I am not going to buy iphone.

It is such a cool product, but only for this reason, I will not buy it. I don't care if it is $2.

[jeebus]

$30/mo for unlimited 3g data is actually a DEAL. I have been with ATT for years and years. I used to be able to get unlimited data for $20/mo on my pre-3g phones that didn't have qwerty keyboards. Once I upgraded to a 3g phone with qwerty, the cheapest unlimited data plan was $40/mo.

So iphone users are actually getting a deal on that 3g data plan vs other smartphone users on the same carrier. It kinda makes me angry that I have to pay $10 more/month to get the same internet on my Windows Mobile phone. Makes me actually consider switching to the iphone to SAVE $240 over the next 2 years.

[Krest]

I see Apple & AT&T stock dipping hard because of this news. Watch & see!

They lied to people by not revealing the truth about the extra costs up front during the iPhone 3G presentation and that's going to hit them both very hard in terms of invester's impressions & stock value.

Once this news sinks in to the heads of the majority of prospective buyers they will not make the purchases. I was all over it until I heard that AT&T was going to fine people who didn't activate within 30 days.

Who do they think they are, the iPhone police?

Now, I will just wait until they show up on craigslist for half price (even if the wait is another year). In this economy, the world isn't ready for the 3G iPhone until the price is actually $199.00 OTD without a commitment!

For now I will be buying put options on both AT&T as well as Apple because i guarantee their stock values are heading south just because of this. This sentiment will surely grow by leaps and bounds as this news proliferates(especially after I post this comment on every blog I can find). HA HA!

Just checked on Yahoo Finance, Apple stock is down 2.08 percent already! You shouldn't have mislead your consumers Steve!

[John]

HELLO???? $30/Month is the data plan cost for ALL 3g phones, people! This isn't an Apple/AT&T conspiracy to hide costs, even if you buy a Samsung or any 3G phone, you're paying that much...so yeah, I guess every 3G phone is "secretly" charging $240 over 2-years.... doesn't the LA Times require you to research before posting a blog?