The 3G iPhone is here, and it’s cheap at just $199 and $299 for the initial 2 models. But who is paying the bill for this obviously consumer-tempting price cut?

Everyone will by now be aware that the new Apple 3G iPhone is on its way after Steve Jobs did his best impression of God and announced details about the new messiah during his keynote speech at the WWDC. And the iPhone 2 delivers on most of the rumours, the biggest being the price cut to just $199 for the 8GB version and $299 for the 16GB version.

But it isn’t Apple which is paying the price for this cut, as AT&T is actually footing the bill. According to an article on Barron’s, Oppenheimer analyst Yair Reiner has discovered that AT&T is going to be paying a subsidy of $325 to Apple for each and every iPhone sold at retail.

AT&T have agreed to do this to allow the price of an iPhone to come down to a level that will enable a whole new demographic to buy in to the dream. Most smartphones get a typical $200 subsidy, but to enable more than just the 25-35 year old high earners who currently buy in to the Apple dream to be able to afford one, the company is going the extra mile. And Apple is graciously allowing it to do so.

Reiner claims that the higher subsidy rate “reflects AT&T’s faith in the iPhone’s ability to attract new subs and increase ARPU.” He also claims that this firmly puts Apple in a position of power as “rivals must scramble to hit a lower, less profitable price point.”

Sales predictions for the new iPhone stand at 15.2 million in 2008 and 33.2 million in 2009. The 3G model is due to hit stores in the US on July 11th, and while Apple are clearly on to a winner, AT&T needs the iPhone to be a massive hit again the second time around for its huge up-front investment to pay off.

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Entry was posted on Thursday, June 19th, 2008 at 4:43 pm under News, Opinion, iPhone.  Print This Post

Read more entries by Dave Parrack.