New iPhone: Lower price, higher cost
Jun 16
The new iPhone 3G, announced yesterday and available next month, costs $200 less to buy than its predecessor. But the new version (click on the image for a closer look) will actually cost a little more to buy and use in the long run than its predecessor, due to higher service costs.
The new phone is $200 in its 8-GB version and $300 in its 16-GB version, compared with $400 and $500 for the older iPhones of the same capacity. An unlimited data plan with the new device is $30, $10 a month more than with the old iPhone. (The least-expensive voice plan, with 450 minutes a month, is the same price as with the old iPhone, at $39.99 a month.) Multiply the $10-a-month extra data cost times the required 24-month contract period and you’re on the hook for $240 in additional charges for owning the new iPhone rather than its predecessor.
The hike in fees may be rooted in a change in the business arrangements between AT&T and Apple for the new iPhone. With the original iPhone, subscribers paid full price for the device, even though a two-year contract commitment was required—an unusual arrangement. The new version reverts to a more traditional business model for the industry. That is, AT&T will buy the phones from Apple and sell them to customers for less than they paid. Then they’ll devote a part of subscribers’ bills every month to reimbursing themselves for that subsidy.
So customers will pay a little more to buy and use the new device as the old, but they’ll pay that slightly higher cost more slowly. The lower upfront cost likely will, as Apple’s Steve Jobs predicts, allow some people to buy the device who couldn’t swallow the $400 price tag for its predecessor. And, at $200 the iPhone 3G will be very competitively priced, given that plenty of plain cell phones that lack the iPhone’s versatility cost that much or more. Also, new iPhone owners are getting a faster, more capable 3G network, rather than the slower AT&T EDGE (2G) network used by the older iPhones (the data plan for which will remain priced at $20 a month, according to AT&T).
All that said, the headlines proclaiming the new phone as cheaper than the old don’t quite tell the whole story.
If you’re looking for other money-saving tips, see our recent post, "Cell plan extra charges: Why and what you can do." Additional information on ConsumerReports.org will also help you find the best cell phone deals as well as other ways to cut your cell phone bill (available to subscribers only).
—Paul Reynolds