Apple made a big splash this week with the introduction of cheaper and more powerful versions of its popular iPhone.
The ability to buy an iPhone for as little as $99 will surely woo new customers to enter the smart-phone market, but those who bought earlier versions aren't necessarily able to save big on the new suite of iPhones. And that's causing a stir online.
Writing on VentureBeat.com on Monday, when Apple made its iPhone announcements, Anthony Ha said: "Too bad the speech didn't come with footnotes, because once again, AT&T and Apple are using the pricing plan to annoy existing customers."
But analysts say it's business as usual for cellular carriers like AT&T (currently the sole U.S. iPhone carrier) to set the price of handsets and to offer subsidies for phones when people sign up for two-year contracts.
Michael Gartenberg, vice president for strategy and analysis with Interpret LLC, a technology market research firm, says the $99, $199 and $299 prices for the new iPhones are subsidized prices.
"There's no way AT&T can continue to do subsidies before the contract is up and still be in business," he says.
IPhone Options
To understand what iPhone options you have, you can compare the models on Apple's Web site. If you want all the new bells and whistles — including faster performance, voice control, video recording and a 3-megapixel camera with autofocus — you'll still have to spend $199 for the new 16 GB iPhone 3G S or $299 for the 32 GB model.
But the $99 option — for the iPhone 3G with 8 GB of memory — is nothing to scoff at.
It is last year's flagship model with a new operating system, and it has most of the new features on the more expensive iPhones, Gartenberg says. (The existing 16 GB iPhone 3G is also available for $149 while supplies last.)
The newest iPhones aren't available just yet — both AT&T and Apple are taking pre-orders for delivery on or after June 19.
Breaking A Price Barrier
"There's a very strong psychological barrier at $99 for some people," says Gartenberg. "The ability for them to buy into the Apple ecosystem at that price point is going to be very, very attractive."
Last year, the floor price for an iPhone was $199. The new $99 offering "certainly lowers the barrier of entry for some people, but over the long run they're still going to have to pay for the same data plan as everyone else," says Kent German, senior editor at CNET.
If you're a new customer who wants the fully subsidized prices, then you're still required to sign up for a two-year voice and data plan with AT&T. The carrier's plans start at $70 per month for voice and unlimited data, including e-mail and Web access.
"I think they might offer a light version of the unlimited data plan," says Roger Entner, a telecom analyst for the Nielsen Company. That may mean the overall cost for consumers on AT&T's base plan may be closer to $60 per month, he says.
Costly Upgrades
The $99 price for the base model of the iPhone, however, is far from the cost you'll pay if you're an existing iPhone user and your contract is not up for renewal.
But Apple's unveiling on Monday of the third-generation iPhone coincided approximately with the expiration of the two-year contract for those customers who signed up for the original iPhone. So, they'll be eligible to buy their choice of a new iPhone at the same price as new customers.
But if you want to upgrade early — before your current contract with AT&T expires, or if you don't want to sign up for a two-year commitment — then be prepared to pay a higher price. (You can check your eligibility for an upgrade online.)
An early upgrade for the new iPhone triples the price to $299 for the 8GB iPhone 3G (the 16 GB model will cost $349). For the iPhone 3G S, the upgrade price is $399 for the 16GB model and $499 for the 32GB version.
And if you don't want a contract at all, then you'll pay $499 for the 8GB iPhone 3G or $549 for the 16GB. And for the iPhone 3G S, it will cost $599 for the 16GB model and $699 for the 32GB version.
These sky-high prices for owning the latest iPhones are raising eyebrows online among Apple aficionados.
But some people joining the online chorus are also glad to see that there are some discounts available for users with an existing contract who want to upgrade now.
"Apple is especially notorious for incremental updates, and 3G buyers should be lucky that AT&T is offering some sort of discount," writes Kyle Ashfield in a comment on NPR's All Tech Consideredblog. "If the iPhone wasn't as popular as it is, they wouldn't have that kind of hope."
More Competition On The Way
The introductions of the Palm Pre and Apple's new iPhones mark the beginning of a busy summer. Entner of Nielsen says many new smart phones will launch in the next few months that will use Google's Android software.
"Every carrier today is re-evaluating the pricing of their handset portfolio in response to the iPhone 3G going for $99," he says.
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