Weeding Through the Spin; iPhone 3G is NOT Cheaper

outsidr, Monday, June 9th, 2008 at 6:53 pm

Posted in the journey

People please – put your thinking caps on for just a moment. Today’s Apple event has taken the internet by storm as we all knew it would. The new iPhone 3G that will be made available on July 11th looks like a fantastic device and while I’m not overly excited about seeing by HSDPA speeds cut in half once the new iPhone floods the market in my area, I am looking forward to picking one up to play with.

If we can all take a step back for a moment however, I’m not happy with all of the praise Apple and AT&T are receiving for the “price drop”. Yes, a shiny new iPhone 3G can be yours for $200 (8GB model) with a two-year contract. Apple has also been very straightforward with the fact that AT&T will require a $30/month data plan with the new iPhone 3G. So how exactly is the new iPhone “half the price”?

Marketing and spin are wonderful things and Apple is a king among men when it comes to these departments. Let’s do some elementary-level math:

8GB iPhone 3G: $200

Increased data plan cost per month: $10

Length of contract: 24 months

$200 + ($10 x 24 months) = $440 vs $400 for old 8 GB model

The phone being advertised as “half the price” is in fact $40, or 10% more expensive than its predecessor. This 10% price increase also brings the iPhone’s total fixed cost of ownership dangerously close to $1,000 – without factoring in the voice plan or taxes.

Current 8GB iPhone: $400 + ($20 data plan x 24 months) = $880

8GB iPhone 3G: $200 + ($30 data plan x 24 months) = $920

Truth be told, Apple is in the rare position of bringing products to market that often are worthy of the hype. Perhaps that is why many turn a blind eye to the facts staring them straight in the face. I say go on; buy that iPhone 3G. Use it, enjoy it, love it. Just don’t think you’re getting away with anything when you do…

Perception is not always reality.

Comments
Tagged as: Apple, iPhone, iPhone 3G, marketing, perception, spin
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  • Money is trivial when it's spent on something seducing as this! :D
  • While I don't disagree, I do think that a company shouldn't be praised for shuffling a cost structure and misrepresenting it to the public. Personally, I think an additional $40 for 3G and GPS is money well-spent. Just don't try to pull a fast one and convince me that I'm saving money. And for god's sake when companies do try to pull a fast one don't praise them for it!
  • Viipottaja
    Very interesting calculation. However, as much as I hate all the iPhone hype (and don't like the phone itself much actually), I wonder if this one is more AT&T than Apple to blame for? I.e. perhaps the $10 data plan price increase will mostly go to AT&T pockets. But of course for the consumer it does not matter in the end.
  • I'm sure that Apple will get a healthy cut of the unfounded rate hike. They have made some incredible deals with AT&T - some that we know about and likely others that we don't.
  • Yeah but it's $5 less that I pay for my N95 data plan from at&t , they hit me for $35 a month.
  • I think they may have swindled you with a "smartphone plan". $20 gets me unlimited data (including 3G of course) and a handful of messages. Time to call and switch - a smartphone plan is 100% NOT a requirement.
  • ah maybe I was in a rush, I only use it for qik streaming, pictures and occasional phone call, use my iPhone for my "daily device" will look into it
  • Definitely do - they try to pull the same thing all the time. Very irresponsible in my opinion...
  • And how many people would keep their 3G iphone after 24 months? I'd say half of them, so the milking would continue.
  • In between Apple would also release revisions of the iPhone, keeping that customer base attached.
  • It is indeed Vlad, but this post questions people's perceptions and how Apple shapes them as opposed to the iPhone 3G's price compared to other smartphones. As I type this, there is a news story running on the TV next to me. The reporter has said the phrase "half the price of the first iPhone" four times now. He then finished the report by asking the anchor, "So now that the iPhone is so much cheaper, are you going to get one?"

    Anyone who was on the fence in terms of wondering just how good Apple really is at PR, look no further. What is basically a price hike tied to a financed purchase ($200 up front, $240 over 2 years) has been translated into the what the media is treating as the most amazing price drop in the history of mobile phones. Commence golf clap.
  • I guess it's a matter of perception after all... you're not only paying for the terminal but also for the services. Let's assume the 3G is at least 3 times faster than the old EDGE phone. This brings the data plan to an 150% price for a 300% service compared to the old iPhone. Half price, see!
    Now, jokes aside: can you estimate how they (Apple and operators) split the subscriptions? Maybe Apple only gets half the money they used to get on the old iPhone and leaves the rest to the operator. Then you're only paying for the service, the phone is still half the price.
  • The sad part is going to be the fact that 3G speeds are going to tank in heavily populated areas...

    I have no way of accurately estimating what Apple will pull from the increased plan pricing but I will say this: AT&T did presumably spend a huge amount of money upgrading its 3G networks over the past few months so they clearly have an investment to recoup. As such, it's quite possible that AT&T will take the lion's share of the $10 increase. At the same time, I guarantee AT&T won't be pocketing 100% of it.
  • gazzrenn
    Hey there,

    Great topic, its a slightly different story in the UK due to the contract length and cost. I've linked to you on my article.

    http://blog.garryrenshall.co.uk/3g-iphone-in-th...

    Garry
  • Thanks so much Garry, and thanks for clearing up the UK pricing for me. It appears Apple has more confidence in its ability to dupe American consumers as opposed to those of you across the pond. ;)
  • Indeed, it seems the US gets exploited again, funny when it happens to the land where it came from.
  • gazzrenn
    Its a tough one really, it seems the problem lies with the service providers, we don't have 24 month contracts here in the UK... only 18 months. Plus we dont always have to specifically pay extra for data, data is normally part of the bundle with minutes and texts.

    I'm personally on t-mobile here in the UK.. i get HSDPA speeds on my N95 with unlimited data (30gb per month fair usage) a good allowance of talk time and text messages for £30 / month.
  • it's bullshit, take the old iPhone with the same contract and dataplan it cost $600,-, same with the other calculations take the same contract and dataplan then the 3G iPhone is cheaper
  • Michel, the same data plan is now $10 more expensive than it had been. This is no secret - Apple / AT&T openly stated it on the 9th.
  • kozjegyzo
    This whole "Half Price" advocating is misleading costumers! I feel there is a well deserved lawsuit coming for Apple. I mean this is just a classic case of false advertising. I'm surprised that no monitoring agency is on this by now, maybe they are slow building the case...

    Rob
  • ROME
    Of note also is how Apple's stock dropped the day this information went public...
    At first glance, Apple announces the iPhone 2 and the internet goes mad yet the stock drops??!?!?!? A second look will reveal that AT&T is no longer paying Apple a monthly fee for every iPhone on their network so the real winner here is AT&T (At least in the US)
  • This type of market activity isn't terribly uncommon, and it recovered quickly. We still have no idea what deals were made behind the scenes or what is happening to that extra $10/month...

    --Sent from my Nokia N95 8GB
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