iPhone 3G is Cheaper* · Wednesday, June 11, 2008

I purchased a first-generation iPhone the day that it came out. Its been a wonderful purchase from the start, in spite of the fact that it cost me $599. Sure, thats a lot of money, but I always felt like I was getting my money’s worth out of the hardware. The first iPhone was the best iPod, best mobile browsing device, and best phone. When Apple reduced the price to $399, I thought that this was an absolute steal.

When I first heard rumors that the iPhone 3G was going to cost less than the current iPhone, I had guessed that this was pure rumor and speculation. There is no way that Apple would sell the iPhone for less than $399, as it would force them to restructure the pricing for their iPod line. By the same token, I couldn’t fathom Apple allowing ATT to subsidize the phone, because this would mean that ATT would be making this subsidy back up by somehow gouging the customer in service fees. Apple did an excellent job of standing up for the consumer with the first iPhone, by negotiating a low-price data plan and allowing for at-home activation through iTunes.

Needless to say, I was shocked at the price point that was announced during the keynote. Only $199? And no mention of contracts, subsidies, or rate increases? Was this too good to be true?

As it turns out, yes.

Currently, I pay ATT $20/month for 200 text messages and unlimited data over their EDGE network. ATT has announced that the new iPhone 3G data plan will cost $30/month, and will include no text messages. ATT charges $5/month for 200 text messages, which means that the iPhone data plan is effectively being increased by $15/month, representing a 75% increase over the existing data plan.

Over the course of the two year contract, an iPhone 3G will cost you a full $360 more than a first-generation iPhone would. This means that with the same ATT service plans, the $199 8GB iPhone 3G will actually end up costing you $559, where an 8 GB iPhone 1.0 will cost you only $399, representing a savings of $160! The iPhone 3G isn’t cheaper at all, it is in fact far more expensive.

Compounding this is the fact that if I upgraded, I’d likely give my current iPhone to my wife, and have to pay an additional $20/month for her data plan. By my math, getting a new iPhone 3G would cost me a minimum of $1039 over two years. Yikes!

So, I’ll be passing on the new “cheaper” iPhone, and keeping my iPhone 1.0. I’ll be able to run all the great new third-party applications, and will have every feature that my iPhone 3G toting friends will have, apart from 3G speed and GPS. As much as I hate the EDGE network, and would like to have GPS, those features simply aren’t worth over a thousand dollars to me. Here’s hoping that Apple and ATT come up with something more compelling and consumer-friendly, rather than misleading consumers.