AT&T to Provide $200 Subsidy on 3G iPhone?

AT&T to cut the price of Apple’s new iPhone
By Scott Moritz, writer

AT&T (T) is planning to put some extra shine on the even sleeker new Apple (AAPL) iPhone.

When the 3G iPhone is introduced this summer, AT&T, the exclusive U.S. iPhone sales partner with Apple, will cut the price by as much as $200, according to a person familiar with the strategy.

AT&T is preparing to subsidize $200 of the cost of a new iPhone, bringing the price down to $199 for customers who sign two-year contracts, the source says. Apple is expected to have two versions of the new iPhone, an 8-gigabit-memory and a 16-gigabit-memory model with price tags widely expected to be $399 and $499.

AT&T and Apple declined to comment.

At $200, the iPhone would be within reach of a much wider consumer market and give AT&T a strong magnet to pull lucrative customers away from rivals like Verizon Wireless (VZ), Sprint (S) and T-Mobile (DT). The $200 rebate or subsidy would be limited to AT&T customers and not available through Apple’s stores. The new iPhone sold by AT&T will likely be locked or programmed so buyers can’t take the cheaper iPhone to another phone service.

Subsidies of $100 to $200 are common in the U.S. phone market, where people buy their phones from their carriers. Lowering the consumer cost of the phone to win two-year subscribers is considered a small investment with a quick payoff. The average monthly wireless bill is around $50, so a phone company can recoup the phone’s cost in a matter of months.

The average iPhone user however, runs up a $100 tab each month due to the higher priced data and calling plan. This would give AT&T an even quicker payback on its $200 outlay. But AT&T doesn’t get to keep all the money it collects from its iPhone users. Unlike most other phonemakers (but like BlackBerry maker Research in Motion (RIMM)) Apple has a revenue-sharing arrangement that requires telcos like AT&T to pay somewhere between 9% and 25% of the money collected each month from iPhone users.

The new iPhone is expected to be released on the one-year anniversary of the original iPhone debut June 27 or thereabouts. A few weeks prior to that launch, Apple is planning to stop supplies of the older model iPhone, according to the source. This will help clear out inventory and stir up demand for the new device. It will also attempt to avoid the public relations pratfall Apple made when it cut the price of the iPhone without warning last year. To soothe the ire among people who bought the iPhone just before the sudden markdown, Apple issued store credits.

A few details about the new iPhone have also been confirmed by the source. The new iPhone will be 2.5 mm thinner than the 11.7 mm original. The iPhone will also have a GPS chip for navigation and other location-based services.

Apple will NEVER let them do that!

In all fairness, I don't think Apple would give a ****. AT&T will be paying their share, as will the customer. Apple wouldn't lose a cent. They'd still get the same amount of money for the iPhone, and maybe a bigger share of the AT&T plan.

I hope O2 do this in the UK. I'm not holding my breath though.

I guarantee that Apple demanded that AT&T hold a certain market value for the iPhone (ie. the same as the Apple Store). They are in the retail business as well as being a wholeseller. I find it hard to believe that they would sell to AT&T at a low enough cost to justify such a hefty price cut. Do you really think AT&T is going to eat 50% of the price of a new iPhone? They would have to get it at a proportionately lower cost for that to make any sense. And I just don't see Apple allowing such cannibalization of their retail outfits.

Just my 2 cents...

Of course you have a point, but is this not the same thing as the £100 price drop in the UK a few weeks ago?