AT&T Subsidizing iPhone 3G for $325?

Barrons reports on a recent analyst note from Oppenheimer which claims that AT&T is discounting the iPhone by $325 to reach its $199 (8GB) and $299 (16GB) prices. This means the actual unsubsidized iPhone cost would be $524 and $624, respectively.

The higher subsidy rate for the iPhone, he says, reflects AT&Ts faith in the iPhones ability to attract new subs and increase ARPU. And he also says it has positive implications for Apple, since it effectively results in a playing field that is tilted in their favor. Rivals must scramble to hit a lower, less profitable price point, he writes.

The analyst also reports that AT&T is paying Apple an additional $100 per phone for iPhones sold in Apple stores for a total commission of $425. No reasoning for this additional commission is given.

Based on this higher-than-standard subsidy, it is believed that Apple's revenue for the iPhone 3G is comparable to the original iPhone where Apple received a portion of the monthly subscriber fees. This agreement has been modified with the iPhone 3G with the substitution of an upfront subsidy rather than a monthly payment.

The large amount of the subsidy introduces some interesting issues for some AT&T customers who are trying to upgrade to the iPhone 3G. Little official information has come out of AT&T or Apple regarding rate plans or eligibility to qualify for the subsidized iPhone price. It seems clear that existing iPhone customers will be able to buy a fully subsidized iPhone 3G, but the answer for current non-iPhone AT&T customers remains murky. Known and rumored information for upgrade eligibility has been consolidated in this guide.

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