A $200 3G iPhone? Yeah right.

Why is everyone making such a big deal about this $200 iPhone report from Fortune? Evidently, the same folks who are praising AT&T and Apple didn't read the report and are naive enough to believe that this is ever going to happen. There's no chance that the next iteration of the iPhone, presumably featuring 3G, will sport such a low price tag.

According to Fortune, "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."

That price cut will put the two versions of the iPhone -- an 8GB model and a 16GB model -- at $199 and $299, respectively.

Fortune said that a person close to the dealings believes the subsidy will only apply to AT&T stores and if anyone purchases the 3G iPhone in an Apple store, they will be forced to pay full price. According to the report, all cash lost on the subsidy would be recouped on the service charges after a few months.

Fortune and its hotshot source is kidding, right?

Why would Apple agree to a deal that would see the subsidized iPhone only be available in AT&T stores? Did everyone just happen to miss that special piece of this report? What this source claims is that the iPhone will have two different prices -- one for AT&T customers signing a two-year contract and one for Apple customers looking for the latest iPhone. I just don't see why Apple would be willing to give up its position of power to AT&T on the retail front and allow the carrier to charge less for the same device.

Further, why would AT&T agree to that deal? People were more than happy to purchase the first-generation iPhone at a ridiculous price, why wouldn't they want to do the same with a 3G iPhone featuring a host of new features?

Subsidizing the price of a cell phone isn't ideal for a carrier; it's the result of a struggle between all the companies looking for more customers. But if you have the most popular device on your own service, there's no reason to worry about enticing more people to your side. In other words, AT&T will do just fine with the higher price, especially considering the 3G iPhone should be more business-friendly.

I know some have said that this could be a reaction to Apple's decision to unlock the iPhone, but that's pure rubbish. AT&T would never allow that to happen and I'm sure that neither company would really want to deal with that headache.

The second problem with this report is that the economics of the deal don't make any sense. If AT&T is sharing plan profits with Apple at a rate of anywhere between 9 percent and 25 percent, according to Fortune, why would the company want to lose even more on the deal?

Invariably, most would claim that it would sell more iPhones and it would all work out, but that would only help if Apple stops sharing the profit on the plans. And with such a unique deal already in place that allows both companies to profit exceptionally well, I just don't see why either company would agree to something that would effectively take cash out of both of their pockets.

The idea that AT&T will sell the iPhone for $200 less than its current price is both ridiculous and outlandish. The company would have no reason to do such a thing and would probably lose out significantly if it ever did.

When Steve Jobs announces the new iPhone in June, look for (at most) a $100 break in price for every retail location; not $200.

[sbwinn]

A hedge fund manager must be selling short on Apple, and needed to turn the stock price around for a few days. That is the only explanation for the $199 rumor that makes sense to me.

[nakedpants]

Apparently you didn't your homework....AT&T is essentially giving new customers a $200 rebate on new contracts. Also, the 3G data plan is estimated to be $99 a month. Also, Apple gets a slice of every customers monthly service fee. So AT&T makes its money back in less the a 1 quarter into a 2 year contract and Apple makes cash hand over fist on the deal....

They give a blog to every idiot now a days....

[Blitzinger]

While your grammar isn't exactly on par, I agree with you 100%. I read an article in an Apple Magazine about how the whole AT&T/Apple deal is handled money wise and AT&T giving a $200 rebate to help boost the launch of it's 3g network only seems practical. I can't believe this blogger at CNET goes through that whole rant of a $200 discount and finishes by saying "Look for a $100 price break".... Is $100 more that bizarre? Seems to forget that the iPhone 3g is going to be THAT much more enticing with a lower price tag. I'm going to copy this URL and post it when the iPhone comes out at a cheaper price on this website when they do a review and list "price" in the "good" category.

[SidStone]

Correction - unlimited data is included in all iPhone service plans. For existing AT&T customers, they must pay $20/month for unlimited data. There are rumors - nothing more at this point - that AT&T may increase monthly plans w/ the 3G as it's anticipated the 3G users will 'consume' significantly more data. But to state that the 3G data plan is estimated at $99/month is a wild guess at this point.

Keep in mind the $200 subsidy rumor is from a single source - Scott Moritz - who has a very poor track record of forecasting Apple rumors....and that's putting it kindly.

I agree with the CNET piece that it makes no sense that Apple would allow any subsidy to only be available if purchased at AT&T stores - and that's IF there is any subsidy at all.

[jaydobro]

The rumored $200 rebate is not for new AT&T customers. It is for existing customers only. The rebate would in essence be for those who bought a previous generation iPhone to upgrade without paying full fare.

With that said, I don't believe this to be true. Apple has a differentiated product and has no reason to compete on price. Slashing the price will only have a negative impact on the perceived value of the phone. Have you ever seen a mail in rebate on an ipod at best buy? Have you ever seen a set of Bose speakers "on sale." NO. Because their products hold a significant perceived value in the consumers mind and competing on price only has a negative impact on the perceived value. Apple is smarter than that.

[Mary7Lynn]

I have a Moto V3XX 3G phone running free app and services from http://LifeInPocket.com/ ! It's more powerful than iPhone! Why even by an iPhone?

The GPS navigation and location messaging features are impressive and its' free. I have been using it for 9 months.

My phone company's is AT&T while my friends with Nextel, Sprint and others are all using it.

[alexacker]

Have you ever used an iphone???? It's not about the features on paper, it's about the user experience and seamless integration. Try it. Maybe you'll understand for yourself. Moto, Palm -- they're all DOA and missed the innovation train.

[fernandotorres1]

Oh Mary Lynn!! Could you please learn how to write in somewhat decent english.

[Mary7Lynn]

There are 3 models of new iPhones, the $199.99 one probably is the low cost version which has smaller display and less functionalities.

Apple plan to ship 6 million units from their contract manufacturer Hong-Hai ( a Taiwanese company with huge facilities in China). The high end one is much more expensive.

Apples stores will be selling at same price.

[sohrob76]

More amateurish rants from the idiots at Cnet. When is this site going to have some credible writers who know what they are talking about?

[wireracer]

Clearly the writer of this blog has never purchased a phone from a carrier and received a new or renewed contract discount. Obviously the 3G iPhone could be sold in AT&T stores for less. If you want to use the iPhone with a different carrier then you can pay the full device cost and get it direct from Apple, same as any other phone. This would encourage iPhone users to stick with AT&T for service because of the discount, and simultaneously allow better integration of the iPhone into the business sector because it could be used with other carriers globally. Apple could afford to give these things away for free with the amount they make per month / per line for each iPhone, so it would be no surprise to me if they listed them at $200 for new or renewed 2-year contracts.

[Miko34]

Okay... I'm always a little skeptical on any rumors. The iPhone for $199 was one I had my doubts with. I still do, but it is possible - even though Apple does tend to overcharge for their products.

Having the $200-$300 price would let people who couldn't afford the iPhone (or refused to pay $500 for one) be able to get it now. AT&T wants more customers. They make their money on the services they provide.

Apple can make money on the software that people will purchase in the future for the phone. It's like when game manufacturers sell their systems at lowered prices even though they are losing money on each system bought. They know they are going to make that money back on the games they sell.

I for one, would buy it right away if it were $200-$300. I was surprised that the iPhone didn't come at a discount originally, but not so since it was Apple. Now, I'm not saying for sure that it will be in that price range, but it doesn't sound ridiculous especially with the LG Vu and Sony Ericsson Xperia x1 coming out this year ... there is more competition than last year.

[menotbug]

I feel dumber having read this article. Cnet, please hire some competent writers.

[gadgetguy360]

Honestly this article was pretty stupid. You are really gonna sit there and say it is impossible, never gonna happen and in the same article say well it wouldn't really make sense for them to do it. How could u even post this?? I'm not saying I buy into it, but I would never hastily say what Apple would or wouldn't do, Apple is known to think outside the box and surprise people. You sound like a moron weather you are right or wrong, just because you say with such certainty. And yet there are paragraphs in there where you can pick up on an uncertain vibe. Especially since discounting phones is a common practice (yes even at AT&T) when a contract is signed. I never rag on Cnet editors for there articles but this one definitely deserves it. I wouldn't even be so bothered if you would just say at the end "my prediction is" or" in my opinion it wouldn't happen". Anything but "When Steve Jobs announces the new iPhone in June, look for (at most) a $100 break in price for every retail location; not $200."

[gadgetguy360]

Honestly this article was pretty stupid. You are really gonna sit there and say it is impossible, never gonna happen and in the same article say well it wouldn't really make sense for them to do it. How could u even post this?? I'm not saying I buy into it, but I would never hastily say what Apple would or wouldn't do, Apple is known to think outside the box and surprise people. You sound like a moron weather you are right or wrong, just because you say with such certainty. And yet there are paragraphs in there where you can pick up on an uncertain vibe. Especially since discounting phones is a common practice (yes even at AT&T) when a contract is signed. I never rag on Cnet editors for there articles but this one definitely deserves it. I wouldn't even be so bothered if you would just say at the end "my prediction is" or" in my opinion it wouldn't happen". Anything but "When Steve Jobs announces the new iPhone in June, look for (at most) a $100 break in price for every retail location; not $200."

[nakedpants]

Actually....the $200 subsidy was reported on CNBC and MSNBC prior to this fools blog. That is also where I heard about the $99 voice/data plan.

[boopiejones]

of course a $200 iphone is possible. look at every other phone in the world with a high initial pricetag. after the first or definitely second year, they are giving them away for free with a 2 year contract, even though the new phones have more features. the iphone might be nifty looking, but it still must abide by market forces.

[FS1982!]

Gosh-o-molly are you people serious! Small minds kill me. I can totally see a $200 iPhone being much less fantasy and more reality. Do you really think that Apple cares about the price of the iPhone? Think on a much bigger level. They now have the SDK out and we are close to the update allowing for the 3rd party apps to sell which will provide hundreds of millions if not billions more in revenue than simply focusing on the price of the phone. The more phones they get in the hands of consumers the more repeated apps will be purchased. That's why they don't care about the price. They are looking to saturate the market, dominate, then sell the apps making 30% without doing anything. They could care less about AT&T, the price of the phone, or anything else apps is where the killing is. Another example of this is the gaming industry. You always here about Microsoft and Sony losing X dollars due to selling the console for less than the overhead cost to produce but it is the software deals that creates the net profit example: Halo 3.

[make_or_break]

Though I have my own doubts about a $200 iPhone, perhaps AT&T knows about other forces that are in the offing that could steal thunder from the iPhone, 3G or otherwise. Certainly reports about RIM's pending offerings could keep enterprise from moving away from their CrackBerry infrastructure no matter how fast or kewl a new high speed iPhone is. BlackBerrys are tried and true, and if there's tricked out BBs coming down the road shortly, what impetus does a bean counter have for justifying a costlier switch to whatever will make an iPhone do more or less the same job that they've already paid for with a BlackBerry enterprise network?

As for making the iPhone more attractive to individual consumers: face it, from the seller's standpoint it's NOT the phone that's important with any deal, it's that two-year commitment to providing the cell company a near guaranteed revenue stream. As much as Apple may beam and thump their chest proudly over their demonic little creation, raking in $100 per month over the next 24 (and perhaps beyond) is what it's all about. Having to sell iPhones at "full price" does cut a LOT of interested consumers out of the loop because of the steep initial sticker price. Getting the phone down to a more palatable starting price will certainly make the monthy fee seem less daunting if only because the cheaper iPhone itself becomes a much more seductive inducement that will (hopefully) cause normally reticent people to be tempted to throw caution to the wind. The iPhone makes for a heck of a powerful loss leader.

[AXG]

It is possible for AT&T to make this offer. AT&T will make up for the lost money on the data plan. If such an offer is made, I would buy 3G iPhone immediately. I am waiting....

[cityscapex5]

Yay! More Chinese made crap from Apple...oooh, i forgot it's made i China but designed in California....LOL!

[sethamiller]

Personal skepticism of a $200 iPhone aside, Don makes a couple of assumptions that give his story legs. First, he assumes that Apple would have the contractual power to prevent AT&T from subsidizing the phones. Apple's theories about the demand for the iPhone have been proven over the last year but Apple signed the distribution agreement with AT&T prior to the iPhone's success. Apple signed with AT&T because no other carrier would give Apple the time of day. This implies that Apple had less leverage than AT&T during contract negotiation. A lack of negotiating power may have given rise to many contract clauses that Apple does not like, the power to subsidize a possible candidate. Secondly, Don assumes without giving indication that he has seen the actual purchasing and market data, that selling iPhones at a high price would yield more revenue for AT&T than low prices. This theory works well if AT&T and Apple were monopolists but they are not.

[elkjam]

To Don: Why does it seem so unbeleivable that the iPhone would be subsidized in ATT stores only? (your quote: "Why would Apple agree to a deal that would see the subsidized iPhone only be available in AT&T stores?"). This $200 price tag would obviously require a new 2 year contract!!! People would only go to the Apple store if they already have a contract and want the latest greatest and put their year old iPhone v1 on ebay. Also, realize that Apple gets up to 9% of the revenue from phone contracts from ATT in their 5 year deal with them - so Apple will still make money on the new contracts for 5 years!

A little more logic here before jumping to conclusions. But it will remain to be seen if happens - fortune seems like a trust-worthy source IMO.