Update: new iPhone pricing plans

AT&T has officially detailed its 3G iPhone pricing, and it's actually a bit worse than I noted last month.

The cost of data has gone up $10/month, as previously discussed. What I forgot to include was the loss of free text messaging--current owners get 200 SMS messages included in their $20 data plan. Now those 200 texts cost an extra five bucks.

Redoing the comparison, what I had outlined as

Old: 399 + (24 x 20) = $879
versus
New: 199 + (24 x 30) = $919

is, for users interested in the same level of access, actually

New: 199 + (24 x (30 + 5)) = $1039

Sure, the price increase includes the upgrade to 3G service, which can rightly be considered a premium. But the pricing strategy feels almost bait-and-switch-esque in its execution. They're trumpeting a $200 savings in the price of the phone, yet users are paying $160 more for usage.

Ironically, what is classified as a win for the mobile phone industry--Apple's moving to a subsidy model to make its prices more attractive--ultimately leaves AT&T with a horrible jack-up-the-prices publicity nightmare on its hands.

See you when the third-gen comes out in '09.

Update: AT&T is not raising data rates on original iPhones with new activations, suggesting that the 3G network is the justification of the price bump. Well, that and the fact that they already made their money on the profit split of the initial iPhone sale.

The consumer cost of the iPhone

Everyone is all abuzz, as they always are, about Apple's latest product news, in this case the $199 3G iPhone. As expected, the focus is on the price: $199 for an iPhone! What a deal!

Yet it's not that great a deal. The entry price has been lowered but not the true cost. Of course, Apple and AT&T know this; it's the foundation of the cellular industry, and AT&T Wireless is happy to exploit it here.

Full disclosure: I am a wildly satisfied iPhone owner. I'm not buying the new one, though, in part due to the economics. Here's why.

The current (now previous) iPhone cost $399 for the device and $20 per month for a required AT&T Wireless data plan. Over the life of a two-year (24-month) contract, the total cost of ownership amounts to

399 + (24 x 20) = $879

This number excludes taxes, regulatory fees and marginal inflationary adjustments, but it's an accurate gauge of what Apple and AT&T get from the consumer across two years.

For the new phone, the price drops to $199, but the monthly data fee has risen to $30. Sounds small, but over the course of two years, guess what?

199 + (24 x 30) = $919

By the end of two years, total cost of ownership for the new phone is actually higher for the half-price iPhone. Apple managed to get monstrous press coverage of its $199 price point with little mention of the data charge, which substantially affects the equation.

Now, I'm obviously simplifying a conversation with many other variables. (For example, over two years, "real cost" including inflation and float may benefit the monthly plan; people who renew contracts in less than two years have altered ownership costs; etc.) But my point is simply put: list price and true cost are not the same, and the 3G iPhone is no cheaper than its predecessor.

Ripple effects

Last Friday my iPhone's vibrate feature failed. I had a day or two of odd brrrraap buzzes, wheezy ailing things, and on Saturday, pfft! no more vibrate.

I went to Apple's Genius Bar on Sunday, fighting masses of bored tourists on Easter to get my phone inspected. The technician (genius?) took a quick look at my phone and decided that I had broken the external silence switch when I dropped it at some point. "There's your problem, right there," he said cheerily.

Before I had the chance to get defensive, he had opened a drawer and taken out a small white box. Out came a new iPhone--refurbished, I'm sure, but visually perfect--and within five minutes the genius (technician) had swapped SIM cards and activated the new phone. He took my phone--nine months old, dropped several times, with the scuff marks to prove it--and put it in the box with an explanatory label.

And that was it. "Here you go," he said, "you're all set." And I went home with a new phone in my pocket.

I tell this story not simply to add to the "cult of Mac" but to examine just why Apple has been so successful.

• Trust. The tech who met me listened to my request, quickly verified it, and moved onto solving the problem. No challenges, no curiosities, no wondering whether I had violated an arcane clause of my limited warranty. Heck, the tech even pointed out that I had dropped the phone--surely grounds for voiding my claim, and for which I had prepared an extensive explanation about timing, cause and effect, and so on. But it made no material difference to him.


• Ease. All I did to get my phone replaced was make an appointment, hand over the phone, and sign a form acknowledging my receipt of a new one. No other paperwork or, as noted above, difficult questions.


• Flow. The Genius Bar is, of course, free. I booked online, arrived late on Easter Sunday, and still got taken within minutes.


• Goodwill. The net effect of the above: I am a newly satisfied Apple customer, not only proud of my iPhone (proud! of a phone!) but delighted with my recent experience. I've spent the week telling people my story, which routinely elicits amazement and wonder: what other company is this easy to work with? This in turn continues Apple's amazing halo effect, which translates into ever stronger sales.

The message, to any company selling products: treat customers with respect and make life easy for them. Individual transactions may have a higher cost than a cost accountant may prefer. But the long-term impact is undeniable.