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

June 10, 2008 |  2:22 pm
Steve Jobs, CEO of Apple, announces the price of the new iPhone

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

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