The iPhone 3G S Price Confusion: Questions and Answers

Elated Apple and iPhone fans poured out of Apple's 2009 World Wide Developer Conference Keynote buzzing about the announcement of a new iPhone 3G S release date slated for less than two weeks away and priced only at $199 or $299 for a 16 or 32 GB model respectively...

At least until they recalled Philip Schiller's words "for new and qualifying customers." That's when the confusion started. Couple that with popular news sites reporting that current iPhone 3G owners would have to pay and additional $200 over the announced price to upgrade, raising the cost to $399 (16GB), or $499 (32GB), elation soon became disappointment and frustration.

After the disheartening announcement, it didn’t take iPhone owners long to discover some small print at the bottom of Apple's iPhone 3G S page that reads: "for non-qualified customers, including existing AT&T customers who want to upgrade from another phone or replace an iPhone 3G, the price with a new two-year agreement is $499 (8GB), $599 (16GB), or $699 (32GB)," and the frustration quickly turned to incredulity and anger.

To further the frustration, Apple’s iPhone 3G S page was reportedly quoting current owners inconsistent pricing. Finally, two days after the pricing debacle, things are starting to clear up.

After contacting both Apple and AT&T, I was told the official pricing scheme was as follows:

For new customers: $199 (16GB) $299 (32GB) – two year contract required.

For customers qualifying for a phone upgrade: $199 (16GB) $299 (32GB) – two year contract required. [There are various requirements to qualify for a free upgrade. No iPhone 3G customers will qualify at the date of launch. Talk to AT&T to find out when you qualify for a free upgrade]

For customers qualifying for an early upgrade: to $399 (16GB), or $499 (32GB) – new two year contract required + additional $18 dollar upgrade fee. [An early upgrade means you don’t qualify for an official free upgrade. Essentially, this is every current 3G owner]

For customers wanting non-contracted phone: $499 (8GB iPhone 3G only), $599 (16GB), or $699 (32GB) – NO contract required.

Finally, for customers that purchased an iPhone 3G within the last 30 days, contact AT&T immediately to find out your options. You have special options available to you.

For the launch on June 19, customers will be given the option to purchase their iPhone at either an Apple Store or AT&T Wireless location. The biggest notable difference from the previous two releases is that Apple is allowing for early reservations on their website (AT&T allows for early reservations made in-store). However, according to Apple’s website “Pre-authorization does not guarantee iPhone availability at an Apple Retail Store. iPhone is sold on a first-come, first-served basis.” This means that early registration may not mean much (other than giving Apple a general idea of how many iPhones to ship to each store). According to Apple Retail Stores, Apple hasn’t issued any specific plan for launch day to handle these reservations as of yet.

AT&T on the other hand already has a plan in place. They plan on forming two lines, one for those with reservations and one for those without. The line with reservations will be let into the store first, giving them priority for the new iPhone. Further details of this plan are laid out in this somewhat offical video:

If you plan on purchasing your iPhone from AT&T, check with your local store to confirm this plan and reserve your iPhone in-store ASAP

If you plan on getting your iPhone from Apple, seriously consider getting “pre-authorized from Apple’s iPhone 3G S website. While Apple hasn’t officially laid out any launch day plans, it’s quite possible they’ll follow suit with AT&T’s surprisingly organized-sounding plan.


And for those curious to know why you’ll have to pay a higher price to upgrade, the reason is relatively simple (though some might argue unfair). Apple technically retails the phones at $599 and $699. AT&T subsidizes the phones for their customers down to a lower price. This means that AT&T pays Apple the difference between Apple’s retail cost and the price “new customer” price (i.e. $400 dollars). This effectively starts AT&T with a $400 dollar loss for every new iPhone customer.

The reason AT&T is willing to do this is because they intend to make that money back with their $60+ per month plans over the duration of a 2-year contract. Because of the high cost AT&T pays for a subsidize iPhone, AT&T would make very little net profit by giving the full subsidized rate to a customer already locked in to a two year contract (basically it would be equivalent to knocking an additional 200 dollars off your current contract for free). Not only is this an unrealistic business move, but assuming that there will only be a limited number of iPhone 3G S’s at launch (i.e. that demand will be greater than supply), for every current iPhone 3G owner under contract AT&T gave a subsidized iPhone to (which is literally nothing more than a $200 dollar loss to them, because they already have them under contract), they would be sending away a potential new customer that would actually earn them profit.

In the end, AT&T is essentially (and theoretically) paying Apple $200 for every year by which you extend your current contract. If you’re a new customer, you’re creating a two-year contract, and therefore AT&T pays $400 of Apple’s retail price. For those who purchased an iPhone 3G at launch, if you upgrade, you’re essentially extending your contract by one additional year, so AT&T pays $200 of Apple’s retail price. If a customer wants to purchase the new iPhone without a contract, AT&T pays nothing, and sells the phone at Apple’s retail price.

I’m not saying that these prices are fair. After all, there’s something to be said for customer loyalty, but at least we know we’re being screwed for a reason.

~M@