10
Jun

Don’t blame Apple for that sucking sound around your wallet

Posted by Steven Hodson in Tuesday, June 10th 2008      

Another cool idea to suck money from your wallet As I was reading through the pile of Apple and iPhone related posts that inundated my feed reader this morning (surprise surprise) I had a glimmer of an idea for a post to write. It had all the earmarks of being a popular post especially since it would suitably rile up the Apple contingent still in their orgasmic afterglow of His Jobness’ pronouncement from the mount of a $199.00 iPhone for the masses.

I had all the facts and figures with their related links spread before me that would show the blogging world about how this was going to be an even more expensive version of mobile crack than the previous version of the iPhone. I figured this would be the post to get me on the front page of Monday’s Techmeme – or at least in the discussion section three quarters of the way down the page.

The problem was that as I started going through some of these links it became apparent I was wrong. It wasn’t Apple who was going to be doing the gouging even though there were some out there who felt a lot of questions still need to be answered by the company. What I was finding though was that people like M.G. Siegler’s, Cyndy Aleo-Carreira, Ed Bott and Mark Evans (for the Canadian viewpoint) were really calling AT&T’s part in this the real financial black hole for consumers. In his post over at VentureBeat M.G. quite succinctly pointed out how this whole argument is stupid and wrong

Instead, AT&T is paying Apple a subsidy for each iPhone sold and activated (and now they all must be activated in the store), to make up for the difference in bringing the price down from $399 to $199. While all of the details on this agreement are not yet known, it appears that it is AT&T and not Apple that is making this extra cash off of the contracts.

Cyndy at Profy.com points to a couple of other things about the AT&T deal for the new iPhone and its contract

I’m going to have to upgrade to a minimum of the Nation 700 plan, which is also going up $10 a month. Say what? Add in the fact that I lose my Rollover Minutes when I change rate plans and AT&T wants me to pay them a LOT of money. If those 2800 Rollover Minutes I’ve accumulated (and which do get used some months) are worth the same $0.10 a minute that the new plan rate assumes, AT&T is charging me $280.00 for allowing me to get the Jesus Phone.

So even though Apple might be painted by some as being the greedy one it is only because of guilt by association. Even though purchasers of the new iPhone will be lining up July 11th to dutifully sign up for the new contracts that are a part of the subsidy that is allowing these cheaper iPhones much of the attention over the increases will wrongly be pointed to Apple.

The fact is that once you have that shiny new version of the iPhone in your grubby little mitts your dealings, other than for servicing I would imagine, with Apple are done. They’ve made their profit and are quite happy to let the service provider – in this case AT&T – continue the wallet gouging. So when you bills start coming in and you wonder if that shiny piece of mobile candy is really worth it don’t look to be blaming Apple – look to the greed of the service provider.

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    Yep Apple and el-Jobso have positioned themselves to look like the ones on the consumer-side whenever partnering with other companies. iTunes: it's the music companies' fault there's DRM. Apple TV: The dearth of content and rental restrictions are the studios' fault. iPhone: AT&T wanted its contract. Apple markets itself as the forward thinking partner with the cool technology and it's these old dinosaurs that aren't progressive enough or too greedy to pass the goods along cheaply, and by partnering with these companies they have a convenient scapegoat to point the finger at while they try the businessmodel nailed down.
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    In the old model: AT&T paid apple royalties on the AT&T bills themselves. New model: AT&T pays Apple the subsidy and Apple gets $0 revenue from the AT&T accounts. How much AT&T is actually paying Apple is unknown (is it the full $200 or something less?). $10 more for the data network doesn't really seem unreasonable from a pricing point of view, and that in and of itself is certainly not gouging. Unlike content on the Internet, building a network actually costs money!

    Still, it's true the "lifetime cost of the phone" is now technically $40 more expensive than before over two years. Is $40 reasonable for the GPS and a 2x faster data network. For many, I think it is. So upfront cost is now much cheaper (that's a big deal for many people) but lifetime cost is a little more expensive. Hardly evil in the scheme of things.
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    Not even close. Check out my full post for the real cost. I currently have a $50 a month voice plan that I share with my husband. I have to upgrade to a larger plan AND the larger plan is going up in price. So there's $20 more a month in voice, plus $10 more a month for the data plan I currently have PLUS they are unbundling SMS at the same time, so factor in another $5 to $20 a month for SMS. So that's anywhere from $35 to $50 per month, and that doesn't include my husband's data plan/SMS, which is added separately on a family account. Over the two-year contract (also upped a year from previous iPhone), that's $840 MORE going into the pockets of AT&T were I to get the iPhone. Which, based on the cost, I no longer am. Sorry, Steve. You can play it any way that you want, but you agreed to the contract with AT&T, and lost the sale. I can't be the only one balking at getting the phone looking at this.
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    Everything I would have said if you didn't write the words out of my thoughts. Looking at the bigger picture, it really is worth it. I'd rather pay $10 more for unlimited data because AT&T knows usage is going to shoot up and they want to be able to support a reliable service than ever spend $600 on a phone - money towards infrastructure means a lot more than a one time sale.
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    Honestly, I didn't need another reason to hate AT&T. I hope at least after they suck all the money from my wallet, at least with the iPhone showing up in so many countries, they'll make deals with more int'l carriers for data roaming, it's like everytime I try and see if that int'l data package they offer is available for somewhere I'm going the answer's always no. Grrr.
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    This is a long con that all the cell carriers play, and they have been conning us for a long time. It is old hat now. The real surprise was the deal that Apple managed to pull off with the original iPhone. They took the risk, thus dictated the terms, and it paid off for them.

    With this refresh, there is no risk. So the only decision to be made is how to structure the cell contracts, and looking beyond the numbers, it is apparent to me that there are a couple of ways you can structure a contract: 1. to be attractive to new customers, and potentially ignore the needs of your established base. 2. reward your existing customers but offer less for those who want to convert.

    I think AT&T is clearly structuring the new iPhone contract to get new customers. It now helps them to sell phones where before, their only concern was to keep existing iPhone customers happy.

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