I’m seeing a bunch of headlines today that say things like The iPhone Gets Faster and Cheaper.
Well, maybe. if all you look at is the initial cost. I paid $399 for Judy’s iPhone last December, and the new model would be only $199. So, that’s $200 less, right?
Not if you look at the total cost. Here, do the math with me:
An iPhone without a data plan is worthless. In fact, you are required to purchase a data plan from AT&T with your iPhone. The iPhone data plan on our current account is $20 a month for unlimited use plus 200 text messages. But the data plan for the new phone is $30 a month (in addition to a voice package of $40 per month or more) and requires a two-year contract. So, at $10 a month, times 24 months, that’s an extra $240 you’re required to pay over the life of the contract, which wipes out the $200 savings and then some.
Update: Kevin C. Tofel points out that the 200 included text messages go away as well. Judy and I actually use that capability a fair amount. At 20 cents per message, we might rethink it.
If you’re a business user, the unlimited data plan in the U.S. costs $45 a month. That’s not a price increase. But it’s a lot of money.
And when the new iPhone comes out on July 11 you will be able to buy it only in retail stores (no more mail order sales), and activating the thing will be possible only in brick-and-mortar stores as well. Presumably this will cut down on the number of unlocked phones in circulation, or at least make them more expensive.
Ed Bott 
And people will fall for this? That’s rhetorical.
Can someone put this in context for me? Is $70/mo for consumer voice+data normal or high compared to non-Apple phones? $840/yr seems a bit high.
What’s the good reason Apple wouldn’t sell the phone at apple.com? I’m sure there’s a good reason, but I can’t imagine what it is.
Follow-up: On the latter, I mean beyond unlocked phones. That doesn’t seem enough to lose millions of dollars worth of impulse sales. Apple.com could require you to purchase the same plan online as you would in a store.
Not sure about why Apple wouldn’t sell the phone online or how $70 a month for voice/data compares to non-Apple phones, but the $30 a month for “unlimited” data is AT&T’s doing, not Apple’s.
Am I the only who’s noticed that the unlimited ‘data’ plan makes no mention of text messages?
And what if you lose your phone, or in 6-12 months you want to update to the new new (or higher capacity) iPhone? Now that the phone’s subsidized does anyone really think AT&T will let people buy a new iPhone in the middle of their contract?
I’m very underwhelmed by the new iPhone 😦
“Now that the phone’s subsidized does anyone really think AT&T will let people buy a new iPhone in the middle of their contract?”
Well, maybe. We’ve been AT&T then Cingular then AT&T again customers for many years, and they’ve always allowed us to upgrade a phone at any time, with the catch that the new phone required renewing the contract to a new full two-year contract. I hear that’s how this deal will work. You can buy the new phone at the subsidized price if you start a fresh contract.
However, in the past they have offered better prices on phones to new customers and only allowed existing customers to match the promo price when the contract was up.
And Katy, Apple and AT&T require you to activate an iPhone with AT&T, regardless of whether you buy it at the Apple store or the AT&T store. So it’s a bit of a non-issue IMO to say that it’s the doing of one company or the other. For the customer, the effect is the same.
Oh and another thing worth noting is the iPhone no longer comes with a dock stand, so if you want one (and who doesn’t 🙂 you can add another $30 to the cost of your ‘cheaper’ iPhone.
Andrew what that says to me is that Apple expects to sell a lot of 3G iPhones to the same people who bought the originals, many of whom will just put the old one on the shelf and not use it. Its resale value is probably $80, according to one pretty good back-of-the-envelope analysis I saw. The kind of person who dropped $599 on the original model won’t go out of their way to resell it for a “mere” 80 bucks.
“So, at $10 a month, times 24 months, that’s an extra $240 you’re required to pay over the life of the contract, which wipes out the $200 savings and then some.”
No, it is a price cut on the phone, and the faster 3G service is more expensive which is standard for all carriers offering 2G/3G services.
If you don’t want to pay more for service, buy an older iPhone, they should be cheap now. Just don’t complain about EDGE. But if you want to complain about EDGE, don’t complain about more expensive service. Or call a phone that cut it’s price in half more expensive.
“No, it is a price cut on the phone, and the faster 3G service is more expensive …”
I disagree for two reasons:
AT&T has never charged different rates for its EDGE and 3G plans. You pay by the megabyte or get unlimited access, and your speed is determined by the device capabilities. A data plan costs the same for an EDGE phone as it does for a 3G phone. At least that’s my experience when I’ve used data plans with EDGE-only non Apple phones before.
You can’t decouple them. The customer has to pay a total price over time, by contract. The fact that the accountants split the total you pay into different buckets makes no difference to the customers’ wallet.
You didn’t pay more for 3G rates on non-3G phones? Fancy that. EVDO services from Sprint, Verizon, and T-mobile have always been more expensive than standard data access. Sprint, before AT&T, was the only carrier providing unlimited data. It’s recently been revealed that they are actually capping it at 5GB now because all other providers do. Data services can range from $35 to $199 in tiers with the iPhone EDGE service previously being one of the cheapest offerings (depending on how you factor the 200 SMSes).
What other mobile phone do people try to compute the total cost of the lifetime of the subscription into the cost of the phone?
Tim, I can only describe how AT&T/Cingular works. As for your item #2, any sane person factors in the full cost of a phone when they are buying a subsidized model. If you buy an unlocked phone, you pay extra but can take it to any service. If you sign a contract, you agree to pay a minimum amount for a set period, with an early termination fee if you decide you want to replace the phone or switch carriers.
I’ve always analyzed phones that way. And when I analyze this deal I see that Apple is delivering an improved product for a slightly higher price than it charged before. Nothing wrong with that, but it does not mean “faster and cheaper iPhones.” It means “faster iPhones that cost more but require a smaller down payment and a two-year agreement.”
Here’ let me try an analogy: You buy a car and agree to pay $10,000 down and $333 a month for five years at 0% interest with no right to resell the car until the repayment period is up. Total cost $30,000. Now the dealer says they’ll let you put only $5,000 down if you’ll agree to pay $450 a month for 60 months. Total cost $32,000. By your logic, the second car is cheaper, right? By my logic, the first one is a better deal.
I own a Zune and an Ipod Touch. Microsoft recently came out with a nice software upgrade for the Zune for free. Apple upgraded the Touch for 19.99 earlier this year and now want another 9.99 for the next upgrade. It’s not a lot of money, but they have a hell of a nerve. The real insult is they claim they have to charge for this because of accounting reasons due to Sarbanes-Oxley. So how come Microsoft can get away with the free upgrade?
They way the media reports, it’s a wonder they haven’t spun this store to say that “Microsoft Involved with Shady Accounting Practices”.
@ al, I wish someone would look into that. why exactly are touch users paying while iphone users dont?
“Tim, I can only describe how AT&T/Cingular works.”
Which is how? AT&T didn’t have an unlimited data plan until the first iPhone approached, and for non-iPhones it ranged from $35 to 40 before 3G was introduced while the iPhone was $20.
“As for your item #2, any sane person factors in the full cost of a phone when they are buying a subsidized model.”
I have never heard anyone say, “This RAZR cost me $1500.”
“If you buy an unlocked phone, you pay extra but can take it to any service.”
And? Who’s talking about unlocked? How many unlocked phones are sold in the US? Certainly, nowhere close to the majority. 10% being generous?
“And when I analyze this deal I see that Apple is delivering an improved product for a slightly higher price than it charged before.”
And I see Apple delivering a slightly improved product at a much cheaper price and AT&T delivering a much improved service at a higher price.
In the last statement I quoted, we are much closer to being in agreement. I just find it silly that no one says WinMo devices cost 3 grand. If you do, that’s cool, I’d love to see a link.
Your car analogy that has no service is absurd, and no I wouldn’t say it’s cheaper because it’s not ANALOGOUS.
Tim, you say:
“I just find it silly that no one says WinMo devices cost 3 grand.”
My post started with this premise: “I’m seeing a bunch of headlines today that say things like The iPhone Gets Faster and Cheaper.”
Not a word about WiMo. Interesting how some people think.
It’s not cheaper. Period.
Well, the service is different… You get 3G connectivity instead of EDGE. How much is that worth to you? I’d agree with Tim: the new iPhone is cheaper (50%), but the 3G service is more expensive (50% too BTW). All in all with your reasoning Ed (and for 2 complete years of service):
– you pay $879 total for iPhone v1 on EDGE
– $919 total for iPhone v2 on 3G (and GPS…)
– (for early adopters, it’s $1079 total for 2 years…)
That makes the new iPhone 4.5% more expensive after 2 years ownership and service with AT&T… in exchange for slimmer phone, faster connection, GPS and what not… not too bad.
Also, the analogy with the car isn’t right, because with the car you are talking about a loan (and you do end up keeping the car after you finish paying it). With the iPhone, it’s really the phone + service that end up being slightly more expensive (and better…). After 2 years of ownership, you still have to pay the same $30 per month…
I don’t have an iPhone BTW and I’m already an AT&T customer (with a 2+ years old RAZR). I do find it pretty slick, I was waiting to see v2… Am considering it, I want to see what the new Samsungs and others are worth before deciding what to change my RAZR with.
I agree with Joe on this,
“- you pay $879 total for iPhone v1 on EDGE
– $919 total for iPhone v2 on 3G (and GPS…)
– (for early adopters, it’s $1079 total for 2 years…)”
I do not think the added price from iPhone 2G v1 to iPhone 3G v2 is very steep.
However, the 2 year contract (which I detest) and the activation issues (which apple had to implement to protect att) are putting me off from going from my iPhone 2G 8gig (Unlocked) to a iPhone 3G 8/16 gig .
I received my iPhone from my company and I do not have a contract with att.
I have a t-mobile contract w/edge and if t-mobile had a 3G network I may consider switching to the new 3G iPhone. 😉
3G would be nice but I will not sign a 2 year contract with att
I wonder if anyone will figure out how to get around the activation process to unlock the 3G iPhone somehow.
Thoughts?
😀
Based on Apple’s continuous stream of new Ipods that everyone must have, how long till the 3G iPhone is made obsolete by the new ‘3G iPhone, Now with Hat’ and everyone dumps the old for the new.
Ed, if you didn’t realize I said we aren’t that far apart. I have no problem saying the cost of owning an iPhone has increased (by $40, let’s add). I have no problem saying stories which ONLY say the iPhone is cheaper are not telling the whole story — but I’m seeing very few of those except at blogs that also have a ton of iPhone stories and are breaking out each element of the iPhone story into separate articles. But your headline is just as misleading.
It’s pretty straightforward: some people refuse to pay for an expensive device because other phones are being subsidized but they may be already paying high subscriber fees; some people are willing to pay more for a device but not the service. Other people fall in between or or are not concerned. If the goal is to properly educate people trying to make a decision, stating that a cheaper iPhone is a myth is just as misleading.
You claim you always analyze phones this way, that you aren’t trying to be misleading. Yet you refuse to cite any mention by you of applying this methodology, of treating a subscription as a device cost, of looking at how expensive 3G data plans are.
A specific example of your bias: “If you’re a business user, the unlimited data plan in the U.S. costs $45 a month. That’s not a price increase. But it’s a lot of money.”
So it IS cheaper! You observe that the business plan hasn’t increased in price, zero change. You don’t compare it to other plans which may be (they often are) more expensive. The sensible conclusion is: that the iPhone got cheaper for business users. But you need to say: “But it’s a lot of money.” Even though it isn’t compared to past plans and competing plans.
Tim, how many iPhones have been sold to businesses? (Maybe zero? There won’t be a reason for them to use this option until September, when support for Exchange is added.)
But since it clearly means a lot to you, go ahead and claim that as a win. I’m moving on.
Didn’t the original iphone force you into a three year contract with AT&T at $20/month, which is $720, the same as a 2nd gen iphone two year contract at $30/month?
Hello Ed.
As you might see, the iPhone is going to be sell in 70 Countries now, Including Central-Americans Honduras, El Salvador, Guatemala and Nicaragua.
I’m from Costa Rica, Why Not Costa Rica or Panama?
Why Apple doesn’t want to deal with our Only Provider “I.C.E” ?
Should it because “I.C.E” doesn’t require a phone Locked to the Network? (that means all 1.5 million cell services here in CR uses unlocked phones)
Here many Tech-Enthusiastic people are waiting for an iPhone/iPhone 3G, but the only way to have it JailBreaking it.
I watched Job’s Keynote and they way he paints new iPhone is Awesome and makes anyone to decide to get a new iPhone intermediately.
I don’t want an iPhone since I have a 3G Sony Ericsson K850i (Great Everything) but what about all other fellas who want one?
Craig, the original contract for the iPhone (I got Judy’s in December) was for a two-year commitment. Early termination fee is $175, with $5 off for every month.
“But since it clearly means a lot to you, go ahead and claim that as a win. I’m moving on.” You brought it up, Ed.
Sigh.
Yes, Tim, I brought it up in the interests of presenting a complete set of facts. A business person would of course have been brain-dead to pay the $45 per month business data plan fee up until now (in fact, until September) because the benefit of this plan is that it allows use of “push” e-mail on supported devices like Windows Mobile and Blackberry handsets. Since the iPhone didn’t do that, a buyer would have been much smarter to get the $20 data plan. Which they all did, I’m sure. Although the willingness of Apple partisans to overpay is legendary.
A workmate of mine told me the iPhone will be available in Australia on pre-paid. I don’t know how true this is (I’ve also read it on a few websites), but it would make the iPhone more attractive to the teen market where they don’t or can’t get into a monthly contract. I’d not sure how data access fits into the pre-paid model.
I’d really like a Nokia N96 instead of an iPhone as I really like the Symbian OS interface that the Nokia N-Series has. But most of the N9x series were quite expensive (until now where Three are almost giving away the original N95 model) and I don’t think I could justify the $1000+pricetag if the iPhone was only a few hundred dollars. Maybe I just not comparing apples and apples.
Dylan