Activation, Price and Costs

I loved activating the old iPhone, you plugged it in, filled out your information and activated using iTunes. Apple, quite effectively, wrestled power away from AT&T. You didn’t have to so much as set foot in an AT&T store to start using your iPhone, it was great.

I was hoping that this was the first step in shifting power away from the service providers. I wanted to see cell phone service providers work much like ISPs, they simply provide you with access to their network and you turn to hardware providers for the hardware. Eventually I’d hoped for silly per-minute charges to go away much like they did in the ISP space and all of it was supposed to start with the symbolic action of Apple wrestling away power from AT&T with the first iPhone.

Then it happened. AT&T subsidized the cost of the new iPhone 3G, allowing Apple to hit its sales numbers and please its investors (as well as increase the install base for the almighty App store) and things went back to normal.

I would rather pay more to be free from AT&T’s grasp and I really hoped that Apple would be the first to change the way cell phones worked after how they handled the original iPhone. But with the iPhone 3G Apple has become no different than any other mobile phone manufacturer. Maybe the long term will still turn out the same or better and this approach will be necessary, I'm by no means a visionary, but what it looks like to me is AT&T wins and Apple and the consumers lose. Its like the struggle between federal government and states rights, and we all just got taxed.

It does look like you’ll be able to buy a no-strings-attached iPhone 3G for $599 or $699 (8GB and 16GB, respectively), but it looks like the days of just buying a phone and activating it on your terms over iTunes are over.

Thanks to AT&T’s subsidies, the 8GB iPhone only costs $199 while the 16GB model will set you back $299. This is significantly lower than the first 4GB iPhone’s $499 launch price. The problem is, as many have already pointed out, that you end up paying more for the new iPhone 3G over the course of your 2-year contract than you did the old iPhone thanks to AT&T’s more expensive data plans:

  Price of Phone Monthly Cost for 900 Minute Plan Monthly Cost for Unlimited Data Monthly Cost for 200 SMSes Total Cost over 2 Years
iPhone (4GB) $499 - $100 giftcard $59.99 $20 Included with Dataplan $2318.76
iPhone 3G (8GB) $199 $59.99 $30 $5 $2478.76


Let’s take the 900 minute plan that AT&T offers, on the original iPhone and on the iPhone 3G this plan will set you back $59.99 per month (plus all the taxes and added wizard sacrifice fees). Unlimited data used to cost $20 per month, now it costs $30 on the iPhone 3G (that extra G is pricey). You used to get 200 SMSes free with the iPhone data plan, now they cost an additional $5 per month. Even if you bought the first iPhone and didn’t take advantage of the $100 gift card that Apple gave to all early adopters when it dropped the price of the phone, your total cost over two years would be $2418.76 - that’s $60 less than the new iPhone 3G and its subsidized cost.

AT&T subsidizing the cost of the iPhone actually doesn’t do anything to lower your costs over your 2 year contract, it simply means you have to front less money. To make matters worse, you can’t opt for the old iPhone plan with the new iPhone 3G, so even if you wanted to buy a no-contract iPhone 3G you’d end up even worse after 2 years.

The lower up front costs do nothing for you, you’re simply delaying the pain. That being said, these things will sell a lot better than the older ones - while they cost more in the long run, the barrier to entry is a lot lower, and that’s all that matters for most.

Good job Apple, going from the company that had such a hot product that AT&T had to share its monthly revenue, to helping fool consumers into spending more than before. I can’t help but ask what Google would’ve done...

The Keyboard AT&T: The iPhone’s Worst Feature?


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  • buckdutter - Friday, August 22, 2008 - link

    AT&T's coverage could indeed be better, but then again they are still rebuilding from when they decided to switch from TDMA to GSM, instead of following the natural path to CDMA, which Verizon, Sprint, and Alltel (soon to be Verizon) use, as well as many more localized carriers. The problem with CDMA is that it is going nowhere. The majority of the world is GSM, and CDMA is becoming more and more marginalized, in fact in the next 4 or 5 years CDMA will be practically phased out in the US. Verizon (and Alltel) will be switching to LTE, a GSM based technology which will be a rough transition - either resulting in sacrificed coverage, or more expensive devices (like Verizons expensive "world edition phones") that will run on both their networks. Either way, they will be doing what AT&T (Cingular, whatever) did 4 or 5 years ago, and much later in the game.

    Meanwhile AT&T will make a natural transition from their 3G, which is in all fairness not nearly as widespread as EVDO at the moment, to LTE. Sprint will be going WiMax. Not one major carrier in the US or abroad has made a commitment to the future of CDMA. Verizon has held on to EVDO as long as it could, and has prolonged having to switch, but they are beginning to hit the limitations of EVDO, meanwhile 3G is just getting started, with AT&T planning to follow suit of carriers abroad and boost the speeds to around 20mbps in mid-2009. EVDO will be topping out around 3.2 at most, if even that.

    While having used all the services I strongly disagree with saying that Sprint or T-Mobile even come close to AT&T for coverage, it is largely regional subjective, and is really not fair to work in experiences in one localized area into the review for the phone. Like them or hate them, AT&T recognized early that GSM was the roadmap to go. Like it or hate it, blame Verizon for delaying the inevitable for so makes no sense for Apple to make a CDMA phone when it is so limited in implementation globally. Because of that decision they are the most widespread GSM provider in the US (the US was a little late in getting into the GSM game).

    In the end, AT&T may have a lot of ground to cover, but we should be excited what at least one U.S. carrier took the leap and is building out a GSM network in the states, even though it meant making the sacrifice of less coverage in rural areas as they build the new network out. It will be interesting to see how Verizon copes with having to change over.
  • Hrel - Tuesday, August 12, 2008 - link

    Over 2 years the new iphone plane costs an extra 60 bucks, but the upfront cost is 300 dollars less. The iphone 3G is less expensive in every way; even with the incremental increase in contract cost. I'm confused that I need to point this out considering you say it in your article then contradict yourself by saying the old plan and phone was less expensive. Total cost over two years the new one is 240 dollars less. Reply
  • maxnix - Thursday, July 31, 2008 - link

    With no user replaceable battery, it is a toy, not a reliable business device.

    It seems to me that 90% of the users I see are fiddling about on it with their fingers and not even 10% use Bluetooth. Are there still no voice driven commands? That's how I use my phone.

    Seems like a great device for someone who wants to make calls on their iPod when they are not listening to a lossy audio source.

    Jobs is the new PT Barnum in that he fully exploits the "A sucker's born every minute..." credo. The world is full of lemmings.
  • maxnix - Thursday, July 31, 2008 - link

    Welcome fanboys to AT&T's limited 3G. The rest of the world has been there for 5 years. Reply
  • steveyballmer - Wednesday, July 23, 2008 - link

    Sprint or whoever has released the perfect smart phone! It's based on Windows Mobile and is beautiful to behold!
    There is nothing else anything like it! The Instinct!

    The ZunePhone has suffered a few setbacks so this will have to do until we work out the bugs. Buy it! Don't be decieved by that imitation iPhumb.">
  • Lezmaka - Monday, July 21, 2008 - link

    I think there's a fairly obvious (to me anyway) reason why the talk time measured is almost half the time the specs state, beyond the best case scenario stuff.

    In most conversations, there's a significant amount of dead air. Even if it's only 1/10 - 1/4 of a second at a time, over the course of several hours, that will add up. But with most music, there's almost no dead air. Even when the person isn't saying something, there's at least some sound being generated. Detecting that dead air and not transmitting would probably be the best for battery life, but even if it continually transmits, the compression would reduce the amount of data transmitted to almost nothing.

    I would guess that choosing an audio source that more closely matches an actual conversation would provide a somewhat more accurate test result. But I'm not expert, so what the hell do I know?
  • Giacomo - Monday, July 21, 2008 - link

    Ehm... No man, there's no way this could influence battery life. No matter how intense is the information in the call, most of the energy drain is due to the "line" itself... Keeping the full-duplex conversation online.

    Everything else left to the battery is the loudspkeaker consumption... But it's a ridicolous amount, you won't be able to measure its impact.

  • donhoffman - Tuesday, July 29, 2008 - link

    Actually the original commenter on this was correct. This is a time-honored technique for getting more battery life out of cell phones. Channel allocation for voice calls is done at call setup. A continuous data stream is not needed to keep up the "line". If either end of the call has nothing to send, it does not need to transmit, saving significant power. The technique used in this article probably does underestimate the battery life. Not by 100%, but maybe 20-30%. Transmit power is much larger than audio power. That is why you get 24 hours listening to music on the iPod side, but only 5 or so hours doing cellular phone calls.

  • nichomach - Sunday, July 20, 2008 - link

    Not wishing to get into whether the new iPhone is all that, I'd note that the enforced PIN code when using Exchange is usually a policy setting defined in Exchange, and there's a choice about enabling it. That choice'll be made by your Exchange admin(s). If they enable it - personally, I do - then I'd expect it to be enforced on any device that claims to support Activesync. One of my arguments with Nokia's Mail for Exchange client, for instance, is that it doesn't (or didn't) properly support policies like that; that the iPhone does makes it a viable choice if I end up with a director demanding one. If you're using your phone in a corporate environment, then you may be sending and receiving confidential stuff. Enforcing a PIN and supporting remote wipe properly is the sine qua non as far as I'm concerned. Reply
  • Schugy - Sunday, July 20, 2008 - link

    Openmoko will have the best 3rd party support while Nokia and Google (Maemo / Android) have their own ressources. But regarding their openness they are evil. The FIC Freerunner is a nice phone but the Openmoko project still has to develop a lot.
    On the other hand I think that a Open Pandora handheld with a USB HSDPA modem (maybe builtin in future revisions) is a lot more usable and even has game controls. Telephony and navigation could be done via a bt headset+voip and gps receiver.

    All the platforms will feature ports of killer apps like pidgin IM, scummvm, evolution e-mail and lots more. Ports of gnash, the GNU flash player, are possible too but I would suggest to get rid of these stupid and annoying banner ad players. A nice stream or download link for mp4-files will make your full featured (fullscreen / post processing filters) mplayer happy.

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