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Counterpoint: AT&T isn't cheating iPhone 3G customers

by Tim Wasson Jun 15th 2009 at 11:00AM

In my youth, I sold cell phones for Verizon. It was not a rare occurrence to have a customer sign up for a new account and get their free phone, only to come back a week later and tell me they dropped it in a toilet and wanted another one. They were shocked when the phone they got for free just a few days before now cost them close to $200.

To a lesser extent, the same thing is happening with iPhone 3G owners wishing to upgrade to the 3G S for the subsidized price. A year ago, 3G owners bought a $600 cell phone (assuming we're talking about the 8GB model) for just shy of $200. The 2-year contract guarantees that AT&T makes their $400 back over the length of your contract. So far, 3G owners are only about 1 year into their contract, so they've really only paid off about half of their subsidy to AT&T.

Most carriers would stop there, and offer no additional incentives until you've come close to reaching the end of your contract. AT&T is being about as generous as they can be by offering 3G owners half of the subsidy after completing half of their contract. Once 3G owners have fulfilled a year of their contract, they can get the 3G S for the base price ($199) plus half the subsidy ($200) for a grand total of $399.

Read on for some fun cell phone contract math.Let's say, hypothetically, that a 3G owner takes advantage of this "early upgrade" offer from AT&T. That means this particular customer paid $200 for 3G and $400 for their 3G S, and has received $600 in subsidies from AT&T ($400 subsidy from the 3G, $200 for 3G S) over 3 years. This is a $200 subsidy per year, which is the exact same per-year subsidy you signed up for originally.

3G owners are complaining loudly about this policy, saying that AT&T should reward loyal customers with a 2-year subsidy on what is essentially a 1-year contract. That's a $200 discount per customer, per year. That's a huge hit to AT&T, and one they're not going to take. And I don't blame them.

Apple tried selling unsubsidized phones originally, and the price was a big pill to swallow for most customers. The subsidy means you get a little more for your money, but unfortunately it means you've got to play by AT&T's rules when it comes to upgrading. And, in this case, their rules seem pretty reasonable to me.

Believe me, I am no fan of AT&T. Coverage in my hometown of Peoria, Illinois leaves a lot to be desired, and no 3G yet, seriously?! And what's up with MMS and tethering at launch? And putting that annoying woman from The Hills in their commercials? They have a lot to answer for in my eyes, but in this particular case they're being about as generous as you can expect a cell phone carrier to be.

3G owners can take comfort in the fact that they can sell their current phone to make up for some of the cost of upgrading, and also that they still have an amazing piece of hardware that, through the 3.0 update, is about to become a whole lot more useful. It's almost like getting a whole new phone! Almost.

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In my youth, I sold cell phones for Verizon. It was not a rare occurrence to have a customer sign up for a new account and get their free...
 

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June 23 2009 at 8:24 PM Report abuse rate up rate down Reply
ron.adair

I have to agree with this article. Although, of course, I wanted to hear that there were many more features in the "S", and a much lower price for recent 3g buyers, I felt from day 1 (once all the whining started) of the announcement that it was quite a foolish platform from which the new iPhone-pricing-haters were standing on. I'm not saying I love AT&T, or that I think an iPhone is really worth $800 new/unsubsidized. But for such a large group of people to act so entitled was a little unsettling for me, especially when I belonged to that group, generally speaking. Nobody owes you the new iPhone 3GS, and nobody owes you a price break on it. If you want it now, pay for it. If you don't want to pay, then finish your contract as you originally agreed.

I will say, however, that AT&T is partly to blame for their issues today. They gave their first iPhone buyers a big load in the face, and seemed to be wielding quite a lot of their muscle when they asked us to pay the unsubsidized price for the original iPhone, but then asked us to wait 2 years before we were eligible for a subsidized price of the 3g.

They of course turned their decision around pretty soon after the original announcement of upgrade pricing. Yet, trying to milk their new Apple customers, many of whom had just left another carrier for one reason which was the iPhone - this was a blunder on AT&T's part that would come back to bite them. And it has. In spades.

So my advice to both sides -

AT&T: Stop sucking so bad and don't be so greedy.

iPhone lusters (me included): Grow up, be reasonable, and realize that just because you can't afford the full price of the new gadgetry doesn't mean someone else should pay your way. Not even the sub-standard service provider, AT&T.

June 21 2009 at 11:49 PM Report abuse rate up rate down Reply
FantomRedux

To be honest this concerns me not in the slightest, as I don't own an iPhone yet (getting a 3G on Pay as You Go on Thursday though), although the amount of fuss kicked up about it after the announcment raised my virtual eyebrow. I don't really know if the AT&T handles its contract differently to O2, or if cell phone contracts are fundamentally different in the US, but the outrage seemed to be huge. As I said, it doesn't really matter to me, but all my curiosity about the matter was cleared up with this article. Thanks :)

^Most useless post/longwinded way of saying "thanks for clearing it up" ever ^_^

June 21 2009 at 9:40 PM Report abuse rate up rate down Reply
Mike K

Lame.

June 19 2009 at 3:27 PM Report abuse rate up rate down Reply
llongley

OK I understand the whole subsidy thing but why, if I do not qualify for the subsidy and I wind up paying $500+ for the phone and am still being required to agree to a new 2 year contract. Until the iPhone I always had Verizon and when I upgraded my phone early I did not get a discount but did not have to extend my contract. I only had to extend the contract when I was eligible or given the subsidy. Ultimately I paid twice as much for the phone as others but still am required to extend my contract.

June 19 2009 at 11:29 AM Report abuse rate up rate down Reply
themachand

So what happens after 2 years? Your off contract and have paid both Apple and AT&T for the iPhone in full. Will you get a lower rate for data? Somehow I doubt it.

June 17 2009 at 12:27 AM Report abuse rate up rate down Reply
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June 16 2009 at 12:24 PM Report abuse rate up rate down Reply
pki730

The premise of this article is flawed as it assumes that AT&T is paying apple $400 a phone. Based upon estimates about what it costs to build these phones, even if Apple is making 100% profit, they're likely subsidising $100-$200 per phone when they lock you in for 2 years. There's no way they're subsidising a 3G iPhone purchaser by as much as $400. Moreover, AT&T charges a premium for iPhone plans, so it's raking iPhone users over the coals each month. AT&T are rip off artists no matter how you sugar coat it.

June 16 2009 at 5:57 AM Report abuse rate up rate down Reply
Peter

A few quick questions....

Are there any details about how/where to buy an unsubsidized 3GS? Can I order online? Couldn't seem to find a way to do that online at apple.com. Any tips appreciated.

Also, stupid question, but I'm planning on giving my 3g to a friend. I assume that I should remove my SIM card and then give it to him (he can go to AT&T to get a new SIM card). Is that a correct assumption?

Thanks in advance for your help!

June 16 2009 at 2:16 AM Report abuse rate up rate down Reply
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