Report: AT&T to cut iPhone service plan by $10

AT&T may slash the price of its iPhone service plan by $10 when a new version of the touchscreen smartphone is launched this summer, according to a story on TheStreet.com.

The article cited analyst Michael Cote of Cote Collaborative saying that there is a "strong possibility" that AT&T will drop the entry-level price of its service plan to $59 from $69. Apple is expected to unveil the latest iPhone on June 8 during the company's World Wide Developers Conference in San Francisco.

(Credit: Apple)

AT&T declined to comment for this story, and Michael Cote did not respond to an e-mail request for an interview.

The price cut would likely help make the iPhone, which now retails for $200 with a two-year service plan with AT&T, more appealing to more mainstream customers. I've been saying for quite some time that the biggest hurdle to widescale adoption of the iPhone or any other smartphone in the mainstream market is the high price tag of the service contracts.

Consumers have shown that they are willing to pay anywhere between $100 and $200 for a sophisticated smartphone device. But the monthly service charge, which starts at $69 for the iPhone, is much harder to swallow.

It puts the real cost of the iPhone 3G over the life of the two-year contract at a whopping $1,856, which includes the price of the 8GB phone and 24 months of the most basic iPhone voice and data plan. It doesn't include the activation fee or taxes and other fees associated with the account. For subscribers who need more voice minutes or unlimited texting, the price tag is even higher.

Still, a $240 reduction in the overall cost of the phone over the life of the contract could entice some cost-conscious consumers.

AT&T and Apple have slashed the price of the iPhone twice already. The first version of the device introduced nearly two years ago was originally priced at $599 for the 8GB version. A couple months after the release, Apple reduced it to $399. When the new iPhone 3G was introduced, AT&T subsidized the cost of the phone and offered it for $199 with a two-year contract. The price cut likely helped the companies sell about 17 million iPhones last year, compared to about 4 million devices in 2007.

For the most part, Apple and AT&T have managed to keep the subsidy and sale price of the iPhone constant over the past year, while other carriers and smartphone makers have been forced to slash prices to attract customers.

Only a month after it hit the market, T-Mobile's G1 started selling for $148 from Wal-Mart. And three months after it launched the Storm, Verizon Wireless started offering a special buy-one-get-one free promotion that allowed customers who bought any BlackBerry device, including the Storm, to get another one free.

But as competition heats up in the smartphone market, AT&T and Apple could be forced to address the affordability issue to gain new customers. This is especially true as Research In Motion's consumer-focused BlackBerry Curve surpasses the iPhone in sales. And with the Palm Pre also set to launch in early June on Sprint Nextel's network, Apple and AT&T will face even more competition.