Inside the iPhone 3G S's pricing

The news that Apple would be selling its fancy new iPhone 3G S for the same prices as the iPhone 3G was greeted by applause at Monday morning’s WWDC keynote. The new, faster iPhone will cost $199 for the 16GB model and $299 for the 32GB model; the 8GB iPhone 3G price, meanwhile, will be reduced to $99.

But, as interested customers soon discovered, those prices aren’t necessarily the same for all customers. The price points Apple touted during its presentation are available only to new AT&T customers and those the provider deems eligible for an upgrade, which depends largely on how far along they are in their contract. AT&T spokesperson Mark Siegel told Macworld that customers should check their eligibility status, which they can do via Apple’s online store or AT&T’s Web site before purchase, just to make sure.

Some current customers will also be eligible for early upgrade pricing, which comes at a slightly discounted price—though it’s a higher price than the one that Apple mentioned in its keynote. Under this discount, the current 8GB iPhone 3G costs $299, the 16GB iPhone 3G S $399, and the 32GB iPhone 3G S costs $599. In addition, customers will have to pay an $18 upgrade fee.

A quick survey of existing iPhone and iPhone 3G users in the Macworld office found that the date at which customers became eligible for the full discount prices varied, in part due to when they purchased their phone, though other factors seem to play in as well, since the dates ranged from July 12, 2009 to March 12, 2010.

Of course, the reason for the price hikes boils down to subsidies. The original iPhone was sold with no subsidy at all for the carrier: the price of the device that the consumer paid was Apple’s full retail price. Instead, Apple got a cut of the monthly subscription fees that AT&T customers paid.

However, when Apple announced the iPhone 3G, it gave up its cut of subscriber fees in exchange for AT&T subsidizing some of the cost of the phone. So, while customers could pick up a brand new iPhone 3G for $199 or $299, the full retail cost of the phone—paid by those who, for example, didn’t want to sign a two-year contract—was higher: $599 and $699.

Wireless companies often offer subsidies for devices that require lengthy contracts, since they’re guaranteed to recoup the discount by having customers for a long period of time. That’s also why early termination fees are so hefty: they help compensate for the discount that the provider gave the customer on the handset.

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