AT&T Takes Hit With New, Cheaper iPhone

Yesterday’s Apple WWDC in San Francisco saw numerous announcements regarding the company’s latest OS X and iPhone 2.0, however a significant amount of people tuned into the live stream or real time updates for one reason, the unveiling of the 3G iPhone everyone knew was coming.

Most people thought that they had the whole 3G iPhone announcement pegged. There were so many rumours flying around that the real story had to be in there somewhere, even if it was buried deep among the less realistic stories. However what a lot of us didn’t expect to see, was such a huge price cut.

To cheers and applause from the audience, Apple announced that a 3G 8GB iPhone is going to cost you a fairly reasonable $199. So how is it so cheap now, when originally an iPhone could set you back $499 ?

Well it turns out that AT&T is going to take quite a hit for those subsidies. According to the Associated Press, AT&T Inc. put the cost at 10 cents to 12 cents per share for this year and next, or roughly $600 million per year.

While the deal might pay off for customers now (who doesn’t want a cheaper iPhone ?) AT&T expects the new iPhone to add to its earnings in 2010 because after a customer’s 2 year contract with the carrier ends, the company no longer has to give Apple a cut of the monthly subscriber revenue, the AP reports.

The company confirmed this in a press release saying that while it did indeed expect to see losses for now, it fully expected to profit from this venture in 2010

“In the near term, AT&T anticipates that the new agreement will likely result in some pressure on margins and earnings, reflecting the costs of subsidized device pricing, which, in turn, is expected to drive increased subscriber volumes. (…) As recurring revenue streams build without any further revenue sharing required, AT&T expects the initiative to turn accretive in 2010.”

AT&T is also raising the cost of service plans for the iPhone, which will start at$39.99 per month, plus $30 for unlimited data.

Related Links

Read more on the Associated Press