Apple and AT&T drop revenue sharing, boost data plan costs

Today's Best Tech Deals

Picked by Macworld's Editors

Top Deals On Great Products

Picked by Techconnect's Editors

By now you know the bullet points: the new 3G iPhone is smaller, cheaper, and faster than its predecessor. But at what cost? While we know what Apple has told us, it appears that AT&T is having its own say about the iPhone 3G and what it means for the future of the carrier's relationship with Apple.

As with the original iPhone, you'll have to sign up for a 2-year contract in order to grab an iPhone. The iPhone 3G will have slightly higher data plan prices than the original model: individual users will now pay $30/month for unlimited data, and business users will have to fork over $45/month.

But there are also a pair of interesting behind-the-scenes developments in the Apple/AT&T relationship. According to the wireless provider's press release, the two companies have ditched their revenue sharing arrangement: no longer will Apple get a cut of the monthly subscription fee that customers pay to AT&T.

And in order to lower the price on the new iPhones to $199 and $299, it appears that AT&T has subsidized a portion of the handset's cost. From their press release:

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. [emphasis added]

To translate for us mere mortals: they're artificially lowering the cost of the iPhone so they can sell more, and hence make up for the difference in cost. This does raise some questions, however: for example, it suggests that the price is subsidized in all 70 countries in which the iPhone is going to be on sale, since Steve Jobs said that the price would be a "maximum of $199" globally.

It also raises a question about the future of unlocking the iPhone to use on other networks. In the past, unlocking has not hurt Apple, since they still reaped the full price of the iPhone's sale. And since unlocked iPhones have typically been used in countries where the actual iPhone was unavailable, it didn't translate directly into lost sales for AT&T either. However, if AT&T is subsidizing a slice of the iPhone's cost, and people continue to unlock the iPhone to use on other providers, then AT&T will essentially be kissing their subsidies goodbye.

My guess? They're probably counting on the fact that the much broader release of the iPhone internationally will stem the tides of those unlocking their phones, and thus not feed back into lost money for AT&T. Will it pay off? We'll find out later this year.

Note: When you purchase something after clicking links in our articles, we may earn a small commission. Read our affiliate link policy for more details.
Shop Tech Products at Amazon