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iPhone 3G's True Price Compared

Ever since Apple announced that they're cutting $200 from the iPhone's price and lowering the iPhone 3G down to $199, people have been rumbling about how the increased AT&T data plan price negates any savings you get up front on the phone.

Gizmodo Jason Chen

Context & Ripple Effects

April coverage put the expected 3G iPhone entry price at $399, before Apple’s June announcement of a $199 iPhone 3G launch price. The lower handset price changes the purchase calculation because AT&T’s higher data-plan charge shifts part of the cost into the service contract.

First-order effects

  • iPhone buyers face a lower upfront payment but must compare the full cost of AT&T service rather than treating the $199 handset price as the total price.
  • Apple makes the iPhone’s entry price more accessible, while AT&T recovers more of the customer relationship through higher recurring data-plan charges.

Second-order effects

  • The pricing structure makes carrier-plan terms a central part of iPhone retail messaging, not a secondary detail after the handset price.
  • Apple and AT&T’s effective offer depends on their combined hardware-and-service cost, making a handset-price comparison with the earlier reported $399 starting point incomplete.

Third-order effects

  • The iPhone 3G illustrates a handset-subsidy model in which lower device prices can be financed through recurring carrier charges, moving competition from sticker price toward total ownership cost.

The trend: Smartphone pricing is becoming a bundled hardware-and-service proposition, with lower upfront prices paired with more consequential recurring plan costs.