Full FeediPhone 3GS pricing - get over it already!
Okay, okay, we get it. The world—at least those that like the iPhone—is in turmoil. AT&T is saying that current iPhone 3G users won’t get any special discounts to upgrade their current phones to the new iPhone 3GS. Let the chaos and destruction begin, right? Well, not exactly. The furor on Twitter (and by extension, several blogs) is, quite frankly, obscene. AT&T and Apple are perfectly right to charge an early upgrade fee, and here’s why it makes sense:
Subsidized Bliss
Back when the iPhone 3G came out, Gizmodo published a great article detailing the price differences between the original iPhone and the spanking-new 3G. Apple had taken the revolutionary step of “dropping” the iPhone’s price by $200, making it more affordable than the original. In reality, all that happened was a time shift in payment. The consumer bought the iPhone for $199. At that time, AT&T paid Apple at least $200 (the exact subsidy amount has never been revealed). Since the price of the iPhone’s data plan had gone up by $10 per month, AT&T would proceed to make back that $200 (and more) over the life of the 2-year contract. To bring the 3G to parity with the original iPhone (which included SMS standard) raised the monthly charge to $15 more than what the original iPhone cost (that’s $15 x 24 months = $360). So while Joe Consumer reveled in the lower initial price, in reality, this new phone was more expensive than the model it replaced.
Early Upgrade = Lost Money
Since AT&T is making up for the subsidized price over the life of a contract, they lose money if a user upgrades early. $10 a month for 1 year is only $120, which leaves AT&T with a deficit of at least $80 for each iPhone 3G upgraded early. Neither Apple nor AT&T is a charity—they have to make money, just like any other business. Many users have discovered that they may qualify for an “early” upgrade on December 31, 2009—18 months since they originally bought their phone. Assuming that these users sprung for the basic plan and SMS, that’s $15 x 18 months = $270. At this point, AT&T might break even on the subsidy they pay to Apple.
iPhone 3GS: More Expensive than the original
Just in case you missed it, the new iPhone 3GS comes with all sorts of network intensive bells and whistles. Tethering and higher resolution photos from the camera will both add new strain to AT&T’s network. The 3.0 iPhone OS software upgrade will also add demand; in-app commerce, iTunes movie downloads, even MMS all require bandwidth, and users expect speed to go along with that. With millions of iPhones suddenly barraging the network, AT&T has its work cut out keeping all those users speeding along, and that’s not cheap. So, while they could be the nice guys and take a hit on iPhone upgrades, where does the money come from to build out network capacity? And remember, AT&T makes no money when you buy an app or download a song from iTunes, even though they supply the network that you’re using to pull down that information.
Suck it up and pay!
If there’s one thing people are good at, it’s believing that they can get something for nothing. Infomercials practically exist because of this perverse human belief—cliché though it may be, there is no such thing as a free lunch. Buy one ShamWow, get another free, just pay an exorbitant shipping & handling fee. Get an iPhone for $200 less than last year’s model, get ready to shell out $240 more during your 2-year contract. The other option is to pay the real cost up front—hand over $400-$500 for that shiny new iPhone. But the majority of people simply won’t. For everybody who’s whining about paying full price to upgrade: go and read your contract. You agreed to a 2-year deal, with early termination and early upgrade fees.
Fanboys though we might be, we are still contractually bound. Here’s one iPhone 3G user who will happily wait until December 31, 2009 to go out and upgrade.
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Thank You! I’m coming to AT&T new and this seemed like a no brainer to me.
That being said, they could have offered a few options to keep the price down:
on June 17, 2009 at 08:50 AM - LINK- extend your contract an additional 2 years from it’s original end date allow them to fully recoup
- prorate the $200 as an add on to their bill for the remainder of their contract period.
Mike,
I actually considered both options…but given that AT&T can’t manage to get MMS up and running before “sometime this summer” do you really trust them to do complicated math on the order of prorating?
As to your first option, when you upgrade, you are signing a new 2-year contract when you upgrade - but with that new contract and new phone comes a new subsidy that AT&T pays to Apple. AT&T still loses out on the subsidy they paid on your original iPhone 3G last year. Hence my point that it’s a simple business decision.
on June 17, 2009 at 05:46 PM - LINK