iPhone Upgrades: What Apple and AT&T Should Have Done

Next week will mark the third major release of iPhone hardware. And with it comes controversy. Existing iPhone users, who bought an iPhone 3G less than two years ago — that’s everybody with an iPhone 3G — will have to pay an upgrade price if they want to switch to the iPhone 3GS.
One side of the story belongs to AT&T and Apple. Both companies had an agreement in the U.S. That AT&T would subsidize the sale of new iPhones for an undisclosed amount around $200. So the base model iPhone cost $199. Apple got your $199 plus $200 from AT&T. AT&T got a committed customer for 2 years.
Now that the iPhone 3GS is coming out, the same deal applies. If you have never owned an iPhone before, or didn’t buy one with a subsidy, then you get the base model for $199. AT&T pays Apple. You get a price break.
If you did buy an iPhone 3G and took the subsidy, then you aren’t far enough into your contract to get a subsidized price again. So there is a $200 charge. You pay $199, plsu another $200, AT&T pays nothing, and Apple gets it all. However, you aren’t committed any further to AT&T.
From the AT&T and Apple side of things, this all makes perfect fiscal sense.
From the customer side of things, this is getting a lot of people mad.
Who will pay this extra $200? The same people who want to get the latest and greatest. The same people who are Apple’s biggest fans. The same people who stand in line to get iPhones.
This has touched off a bit of a war between bloggers and commenters on the Internet, with fact-focused bloggers stating that this is how it is and everyone should stop wining. We should have known this was going to happen and that it happens with other phones on other networks as well.
But isn’t there a win-win here?
What are the motives on each side?
The customer just wants a good price and fairness. Certainly it seems that loyal iPhone customers should be rewarded, not punished, for their desire of the new phone. But Apple needs to make a profit on these devices — they’ve got employees and manufacturers to pay, and shareholders to please.
It seems to me there is a solution, if all sides are willing to give in a little.
First, AT&T’s motive in giving a $200 subsidy is to get a customer for 2 years. Why can’t they do that again? Simply extend the user’s contract by 2 years. If you are 1 year into a 2-year contract, then just push that date out again.
Apple could give a little by accepting the old iPhone 3G as a trade-in. They could resell it as a refurbished model. Even if they don’t it removes one more possible jailbroken unlocked iPhone from the market. I’d imagine that a lot of iPhone 3GS will become just that.
And the customer can agree to pay a modest upgrade fee. Doubling the price is a bit much, but would we complain about a $49 fee?
So how about: A $49 upgrade free if you trade in your old iPhone 3G and accept a 1 year extension to your AT&T contract.
Sounds like a reasonable solution.
But it looks like we are stuck with the $200 fee. At least this means we keep our existing AT&T contract, which will be a welcome thing if Apple every allows other carriers to sell the iPhone. Maybe this whole thing is a nudge from Apple that this really will happen some day.

Comments: 4 Responses to “iPhone Upgrades: What Apple and AT&T Should Have Done”

    6/12/09 @ 4:27 pm

    The full price of the phone is actually $699. So when you pay $299, at&t has to pay Apple $400 (or maybe less because I’m sure they aren’t paying retail). When you do the early upgrade of $499 you are still getting $200 off and still have to sign a 2 year contract. If you don’t want a contract you need to buy it for the full $699 price.

    6/13/09 @ 7:05 pm

    Aren’t current iphone 3g customers that are still under AT&T’s contract eligible for a standard upgrade after 1 year of owning the iphone & being on the contract… meaning they get the discounted price once 1 year has passed?

      6/13/09 @ 8:39 pm

      Turns out that after one year, you get half of a subsidy. So $100 extra to buy the 3GS on July 11, 2009 if you bought your 3G on July 11, 2008.

    6/20/09 @ 7:42 pm

    I think it sucks!! I plan to get a regular phone and throw my iPhone into the trash can. I’ll drop my 30 extra dollars for multi media and pay a base phone rate until my contract is up then swap back to Tmobile. If AT&T can’t work with me to keep a good customer then I’m out. I’ll just call it a lesson well learned.

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