Subsidized iPhone? I Wish

Supposedly, AT&T will subsidize the iPhone. Carrier subsidy would be a big deal and would bring the iPhone's pricing model back to real-world levels and normalize the device with other mobiles sold by AT&T.

AT&T, like other carriers, justifies locked phones and service contracts by the subsidies. Buyers can pay a much higher price and be free of these obligations.

There is no iPhone escape clause. Buyers pay a premium. Both iPhone models are unsubsidized, locked devices with two-year commitments. At launch, I worried that Apple and AT&T had established a precedent for increasing costs elsewhere—as in service agreements or keeping phones locked at any price.

So much for my worries. Only the iPhone remained subsidy-free, with ridiculous contractual commitments.

I've got to ask: What could the subsidy foreshadow? And the answer keeps leading me to an unlocked phone. AT&T has an exclusive distribution deal in the United States, but what's the fine print? AT&T isn't exclusive seller, as Apple also sells the phone, albeit locked to the carrier's network. It's no secret that 25 percent or more of iPhones end up unlocked, mainly outside the United States.

A favorite Apple CEO Steve Jobs tactic: Take something and make it be or just seem like more for the same price or a tad greater. DRM-free music from iTunes is great example. Apple initially offered DRM-free tracks with double the bitrate for $1.29 each, or an album price of $9.99. People could upgrade previous purchases for just 30 cents more per track. Yeah, it was a great deal but still a sleight of hand, because people had to rebuy stuff they already had.

I can imagine a scenario where Steve does one of his "one more thing" jigs. He announces the iPhone's new price—the big savings—of $199. Or you can pay the same price as before and get the phone unlocked. Wow, what a deal, he can claim. Buyers get more (unlocked phone) for same price or they can pay less and get what they had before plus 3G and other new features.

Unlocked iPhones would open the sales spigot, and explain the other strange iPhone rumor of the week: a 25 million 3G iPhone order from Foxconn Electronics. Supposedly, the manufacturer is expected to deliver 3 million iPhones just in June. Apple's current iPhone numbers simply don't justify a lifetime order of 25 million, unless there's some plan to dramatically boost sales. Unlocking would be a helluva way to do just that.

Posted by Joe Wilcox on April 30, 2008 7:15 PM