What iPhone 3G Max $199 Price Really Means

In the WWDC 2008 keynote, Steve Jobs phrased the price of the the iPhone in an interesting way. He said , “the price is a maximum of $199.” [1:40 mark in the video]

The WWDC2008 Twitter account said something that really sparked my interest: “Factoid: iPhone 3G = $199 “MAXIMUM” price. Subsidies coming?” ‘Wow,’ I thought, ‘if we get some AT&T subsidies going, it could drop to $99 or even free with a two year contract!’ However, I now think that this was exactly the wrong way to approach this statement.

AT&T has come out and shed some light on the subject. $199 IS the subsidized price already. Also, activation won’t be happening at home over iTunes any more. In order to walk out of a store with an iPhone 3G in your hand, you will have to sign a 2 year contract on the spot. True, you can cancel the contract within a “trial” period, and I’ve seen a few people leave comments saying that this is a loophole to get the phone out of contract. What they’re forgetting is that you have to return the phone if you cancel the contract within the trial period.

When Jobs said that the phone would have a maximum price of $199, I think what this really means is that AT&T will not be selling these phones without a contract attached to it. You’re not going to be able to pay the full manufacturer’s price (which I suspect is $400, or even more) to get a phone contract-free. I think this is to limit resellers from unlocking the phones without financial consequence. Now they’ll have to pay the contract termination fee to redistribute, and this will jack up the cost of unlocked phones. Also, I imagine that you can only sign and immediately cancel so many AT&T contracts before red flags go up (unless they want to let you keep dumping money into their pockets with early termination fees).

If you aren’t familiar with how subsidies work, head into your local cell phone distributor and ask for the out-of-contract prices for any of the phones. I think you’ll be surprised.

Chris Owens