While the 3G iPhone includes a number of new technologies to excite tech-savvy phone users, it’s the device’s price and enterprise focus that could stand as the greatest boon to AT&T Mobility, the exclusive U.S. carrier for the device.
Indeed, the carrier plans to sell the 3G iPhone for half of what the current version goes for. The 8 GB, EDGE iPhone was selling for $400 (it is currently out of stock), and the 8 GB, 3G iPhone will sell for $200. A similar price cut will be available on the 16 GB version.
AT&T Mobility will also introduce new iPhone pricing plans: Voice plans include the carrier’s current models that start at $40 per month for 450 anytime calling minutes with a mandatory data package adding at least $30 per month to the package. The data package includes unlimited cellular and Wi-Fi data access, though no mention if it will include the 200 text messages that are part of the first-generation iPhone’s $20 per month data package. So, overall the pricing model for the 3G iPhone increases from at least $60 per month to $70 per month.
The higher pricing is due to a new financial agreement between Apple and AT&T, one that the carrier expects initially to drag on earnings but will pay off over time.
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“The new agreement between Apple and AT&T eliminates the revenue-sharing model under which AT&T shared a portion of monthly service revenue with Apple,” AT&T said in a statement. “Under the revised agreement, which is consistent with traditional equipment manufacturer-carrier arrangements, there is no revenue sharing and both iPhone 3G models will be offered at attractive prices to broaden the market potential and accelerate subscriber volumes.”
“Our prior agreement required us to share our ongoing customer revenue with Apple,” explained Rick Lindner, AT&T Mobility’s CFO. “Now, in line with industry practice, we will pay Apple upfront for devices sold in our stores, and commissions for units sold and activated by Apple, and we will retain all the customer revenue. This model facilitates device subsidizing for our customers.”
Lindner explained such a model – a common one for carriers worldwide – requires AT&T Mobility to invest in the purchase of 3G iPhones initially, but reap the benefit as more people purchase the device due to its lower price. He added that AT&T Mobility would not have to share revenues with Apple, which should result in a potentially higher payoff. According to a report from Cowen and Co., AT&T Mobility said it anticipates handset subsidies of around $1 billion for this year.
AT&T Mobility countered the higher upfront costs by claiming iPhone customers typically spend twice as much per month as the carrier’s average user. The carrier reported average revenue per user of around $51 for the first quarter.
The key, though, is to entice more people to purchase an iPhone, with Lindner and AT&T Mobility President and CEO Ralph de la Vega repeatedly referring to “volume” during a conference call.
“Over the past several years, when lower price points have been introduced on other devices, we’ve seen significant volume increases, and there’s every reason to expect that to happen to the 3G iPhone,” said de la Vega. “We could really have mass adoption of this device.”
“At these price points, iPhone has gone from being out of reach to very attainable and compares well from a feature and desirability standpoint against any smartphone currently on the market,” said Kevin Burden, Director of Mobile Devices at ABI Research.
Further, AT&T Mobility is counting on enterprise demand for the 3G iPhone. The carrier said it will begin marketing the 3G iPhone to all of its business customers, which includes all of the Fortune 1000. And, to prepare for the rollout, AT&T Mobility said it will conduct training among its enterprise and small business sales force and customer-support employees.
Apple earlier this year announced its intent to target the enterprise with a software development kit that will allow business users to access corporate applications.
Interestingly, AT&T Mobility said it will also make use of the iPhone SDK to introduce applications onto the 3G iPhone. For example, AT&T Mobility is finalizing YELLOWPAGES.COM mobile for the iPhone, an innovative GPS-enabled application that combines local search with social networking capabilities, giving users the ability to search for information, share reviews and plan activities with friends, neighbors and co-workers.
