For an additional $400, AT&T said Tuesday it will offer its customers the possibility to purchase the new iPhone without the mandatory two-year contract.
Apple’s new 3G iPhone, to be released Friday, July 11, will sell for $199 or $299 depending on the phone’s storage capacity. The no-contract option would boost the price to $599 and $699, respectively.
It is unclear when the no-contract phone will be made available and even more unclear are its advantages.
In a statement released Tuesday AT&T said that “in the future, AT&T will offer a no-contract-required option for $599 (8GB) or $699 (16GB),” giving no further details as to the date of the release.
Those opting for the more expensive no-contract iPhone will neither be able to take it to a different carrier nor will they be offered a preferential monthly plan, making its popularity uncertain.
Analysts went to work scrutinizing the AT&T announcement's meaning for the average selling price of Apple's iPhone and the wireless carrier's subsidy.
“Given the $599/$699 price of an unlocked iPhone we believe this implies an iPhone ASP of around $550 to Apple which is $200 higher than the $350 we currently have modeled,” Sanford Bernstein analyst Toni Sacconaghi wrote Tuesday in a note to clients.
But opinions on the matter diverge among IT analysts.
Shannon Cross, an IT hardware analyst at Cross Research, believes that $400 indicates a subsidy of around $350 paid by AT&T to Apple for each iPhone activated.
“We assume there is some premium in the unlocked price above and beyond the subsidy as it is in AT&T’s best interest to have active subscribers on its network,” she wrote in a report.
By subsidizing the new iPhones, the Dallas-based phone company, the biggest phone carrier in the U.S., helped cut the price of the device by half, but more importantly it secured a flow of new, high-paying subscribers attracted by the low price and improved features of the fashionable smart-phone.
While 3G iPhones up-front price was reduced by 50 percent, it is accompanied by an increase in AT&T’s monthly service fees, which effectively raises the total cost of ownership over the previous model.
"But most potential buyers are unlikely to do the math,” Mr. Sacconaghi wrote.