AT&T's iPhone 3G subsidy will cost 'em
A newly negotiated deal with Apple could hurt exclusive U.S. iPhone carrier AT&T in the short term, but the cell phone carrier sees a big upside for the future.
Following the much-anticipated launch of the iPhone 3G at an Apple event in San Francisco on Monday, AT&T announced that it had struck a new deal with Apple. The new arrangement between AT&T and Apple is similar to other contracts AT&T has negotiated with other smartphone manufacturers such as Research In Motion and Samsung.
(Credit: Apple)Since the first iPhone was launched last summer, AT&T and Apple have shared ongoing revenue from iPhone users. But now AT&T will pay the upfront cost for the iPhone 3G and subsidize the total cost of the phone by making customers agree to a two-year service contract.
The arrangement will benefit consumers by allowing the new iPhone to be sold at a much lower price point. The 8GB version will cost only $199 and the 16GB version will sell for $299 with AT&T's subsidy. This puts the iPhone on par with other smartphones such as RIM's BlackBerry and Samsung's BlackJack.
But the new deal comes at a price. AT&T executives said on a conference call with analysts and investors on Monday that the arrangement will put pressure on the company's profit margins and dilute earnings for the next year and a half. That said, the company believes that the new price point and improved Web surfing experience of the iPhone on AT&T's 3G wireless network will drive sales of the iPhone and get more customers using its data services.
"Less than 20 percent of our customers have integrated devices," Ralph de la Vega, the head of AT&T's mobile business, said during the conference call. "And at the $199 price point we could have mass adoption and put the iPhone in the hands of people who have never surfed the Web on a phone."
What's more, AT&T sees iPhone users as highly valuable customers. Executives said that they are willing to make upfront sacrifices to get these customers on their network.
Specifically, iPhone users typically generate more revenue than basic AT&T cellular customers because they use more data services, de la Vega said. And with the new 3G capability and more applications coming to the phone, executives expect that to increase. iPhone users are also more willing to recommend the device to friends and family. And the churn or rate at which they drop the iPhone and the AT&T service is very low compared with customers using other devices.
"The 2G iPhone experience helped us understand what the customer characteristics are likely to be," Rick Lindner, CFO of AT&T, said during the conference call. "These are high value customers."
As a result of the new arrangement, iPhone users will subscribe to the same kind of voice data plans already offered to other AT&T smartphone customers. This means that as part of the two-year contract commitment, customers will be required to have at least a $39.99 voice plan. And they will choose from one of two data packages. Consumers will get the full smartphone data package for an additional $30 extra a month. Business users who want corporate e-mail can select a data plan for an additional $45 a month.
Update 3:59 p.m. PDT: The new AT&T iPhone 3G data pricing means that consumers will now pay $10 more a month for data service. The original iPhone data plan, launched a year ago, costs $20 a month. An iPhone 3G must be activated in either an AT&T or Apple store, and customers must agree to the two-year service contract with AT&T, de la Vega said.
Marguerite Reardon has been a CNET News reporter since 2004, covering cell phone services, broadband, citywide Wi-Fi, the Net neutrality debate, as well as the ongoing consolidation of the phone companies. E-mail Maggie.
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Aren't these companies making enough money off of texting that should be included with internet for free anyway? I don't have to pay anymore for texting from my computer at home, why do we have to do it on a cell phone? Well, I guess we don't since I'm not...
Hmm... that Google Phone is looking better by the minute.
Apple will dominate the mobile phone market, it is inevitable, and as was mentioned, it's all about the ecosystem they're creating around it - and, of course, their ability to constantly meet the needs of the consumer with an elegant product that is extremely functional and very well engineered.
There is no doubt in my mind that the beginning of the end for Microsoft happened way back with the introduction of the iPod, and iTunes for Windows - this gave Windows users a peek at how good Apple software is, even on a Windows PC. And the quality of the iPod, it's beautiful design, coupled with the iTunes software was tempting enough for a lot of people to finally consider getting a Mac.
The iPhone is picking up it's own heavy stream of income and, of course, will further saturate the market with awesome products that will result in even more market share for Mac computers.
Just wait, I say Apple goes over $500 by the end of the next 2 years unless it splits before that. Microsoft is sinking, fast. Switch now while you can, everything Windows is already obsolete and will never even remotely come close to touching the future Apple holds.
Poetic Justice? Indeed. Cheers to everyone who's thought differently through all the years, and congratulations to everyone still suffering through Windows - the end is near and you'll finally see the light.
http://www.pisceandelusions.org
Maybe AT&T could use some cheaper electricity for their switching/cell equipment and abandone the whole 2-yr "recoup our costs" thing. Who knows, I without it, I might choose to buy multiple devices from them...