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"Wait, they want more money?"

Posted: 8 June 2009, 13:53

So by now, everyone has heard of the iPhone 3GS. Yippee. Looks snazzy and has upgraded features. Since I’m still on my original spec iPhone (well, 16GB EDGE iPhone to be exact), it’ll most likely be my next phone upgrade. In fact, a lot of people want to upgrade to the 3GS. But there is a hiccup: if you bought last year’s 3G iPhone, you’re still in your 2 year contract, and thus not eligible for the $199 price tag. This, of course, is nothing new, but what is new is that people can whine about it on Twitter.

Well, that’s a lie—Twitter was around when previous travesties took place. Even still, it seems like my Twitter, Facebook and RSS feeds are full of iPhone 3G owners complaining about how they don’t qualify for the advertised pricing, and how, of course, it’s not fair! Also, they don’t want Billy playing in their sandbox because he tends to pee in the sand and steals their plastic shovel.

Let’s explain phone subsidisation by the mobile carriers. Ever notice how many free* phones there are available on a mobile carrier’s (say, AT&T) website? Take, for instance, how almost ever single RAZR phone acquired 2-3 years ago was considered free*. When I bought a RAZR around its debut, I paid $200. Did I feel gypped? Well, partially, since the phone sucked, but in reality, no. You see, Free* carries an asterisk for a reason—you have to qualify in the small print. Any price with footnote small print is designed to bring in new customers, and lock them into a carrier with a contract. When I bought my RAZR, it had a small 1 year contract, and it was the new shit on the block. When most people I knew started getting them free* a year or so later, they were signing up for new 2 year phone contracts. When I paid for my Blackberry Pearl shortly after it was released, I opted to pay $50 less for the phone and get a 2 year contract. That bit me in the ass when I cancelled my contract before the 2 years had passed, and I had a $238 cancellation fee.

When purchasing my iPhone, I paid out the nose for a 16GB version. It was around $700 after taxes and AppleCare. Yes, I signed up for a 2 year contract, but the massive difference between this purchase and that of the 3G purchasers a few months later was that I paid full price. Apple decided to lower the price of the iPhone 3G by allowing carriers to subsidise the cost of the phone.

For those of you not quite getting the term subsidise, here’s the layman’s terms: The iPhone 3G still had a $5-600 (pre-tax) price tag on it, but the mobile carrier (AT&T here in the states) paid $300 of that to Apple when you signed up for a locked in 2 year contract. Why? Well, did you notice how many people bought iPhones once they were only $199*? What is AT&T claiming now in their marketing—largest smartphone marketshare among US mobile carriers.

To put it simply: AT&T fronted you some cash so it could boost subscribers. The stipulation of that little cash-push was that the user stick to a 2 year contract, because, ding-ding-ding, this is how AT&T makes money. iPhone users are not unique: any AT&T customer who purchased a subsidised phone recently is in the same boat. AT&T wants their money back in your monthly phone bill, and they won’t front you again until your 2 years are up. Since I had not dipped into AT&T’s cookie jar of subsidy with my purchase, I’m free to get a subsidised price on an iPhone any time I want, so long as I tack the extra 2 years on my contract. But then I land myself in the same subsidised upgrade situation all the 3Gers are in.

What kills me is that people are complaining about this, yet it was pretty clearly mentioned in tech press when the iPhone subsidisation started last year. It’s hardly a new concept, yet people still complain. When you buy something with a necessary subscription, realise you’ll be paying the full price somehow, even if it magically has a big price drop on the new model.

I’m not saying I support AT&T. I really hate being stuck with them to use my great phone; However, I understand where the logic is behind the pricing.