iPhone economics: The 3G isn't cheaper in the long run

Perhaps one of Apple's greatest marketing achievements for the new iPhone 3G is all the attention paid to the "price cut." Actually, the typical consumer will end up paying more to use an iPhone than they did before.

Yes, the new, more capable device is $200 cheaper up front than iPhone 1.0. But, as Salon, the New York Times and others point out, the phone requires an AT&T data plan if you want to use iPhone capabilities like Web surfing and e-mail. And AT&T has raised the price of its iPhone consumer data plan by $10/month. Multiply that by the cost of a mandatory two-year contract, and the service costs another $240 while the hardware drops by $200.

"Of course, that includes faster 3G data service, so the price increase may be worth it. But we should call it an iPhone price increase, not a cut," argues Saul Hansell at the New York Times.

How many "Apple, AT&T hike iPhone total cost of ownership" headlines did you see yesterday? Not many.

Apple marketing hype strikes again.

AT&T is convinced that subsidizing the cost of the device, as carriers do with other handsets in the U.S., will be worthwhile in the long run, even though the company says it will take a short-term profit hit of 10 to 12 cents per share. In return, AT&T says it will attract more "high-quality, data-centric customers. Currently, less than 20 percent of AT&T's postpaid subscribers have integrated devices capable of voice, Web and data applications."

iPhone users are lucrative customers. "Based on the company's experience," AT&T said in a press release yesterday, "average monthly revenues per iPhone subscriber are nearly double the average of the company's overall subscriber base."

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