AT&T made Steve Jobs an offer he couldn't refuse and the result is the remarkably low price of the 3G iPhone. According to an analyst with the boutique investment firm Oppenheimer & Co., AT&T will fork over $325 to Apple for every single new iPhone sold. With a retail price of $199 (8GB) and $299 (16GB) that puts the full before-subsidy price tag for the second generation iPhone at $524 (8GB) and $624 (16GB).
There are also reports that AT&T will also pay Apple an additional $100 bounty when a new iPhone customer signs up for AT&T service at an Apple retail store. So Apple has the potential to pocket $425 for every new iPhone it sells or for every new subscriber it signs up, or maybe both.
If reports are true, then this is a highly unusual move for AT&T and shows just how important the iPhone is to the company's mobile business. It's no surprise that most cell phones are subsidized by the carrier, but the average cost a phone company usually eats is around $200. Then again, the iPhone is not your average smart phone so it makes sense for both AT&T and Apple to bring down the price. This is especially true since the device has so far fallen way short of Steve Jobs' goal of selling 8 million iPhones by the end of this year.
The Oppenheimer analyst in question, Yair Reiner, also believes that while AT&T may be putting a lot of money up front, the new deal is comparable in terms of revenue for Apple to the old deal where it received a cut of each monthly cell phone bill.
As MacRumors points out, this new deal may affect current AT&T customers who want to upgrade their non-iPhone plans to the new 3G if they are still in the middle of their current contract. This block of customers seems to be the only group frozen out of the low-priced iPhone. Too bad. Even though Apple has revolutionized the smartphone, AT&T seems to be less creative when it comes to changing the way cell phone carriers do business in the U.S.
I'll also be curious to see if big subsidies for the iPhone translate to gigantic early termination fees for AT&T customers wanting to cancel their service.
