AT&T to cut iPhone price by $200, says report

Apple won't object, adds analyst

AT&T Inc. will subsidize $200 of the purchase price for new iPhones this summer, according to a story posted by Fortune today, reducing consumers' out-of-pocket expense for the popular device to as low as $199.

Apple Inc. may not publicly say "thanks" to its wireless partner, a researcher said, but it could hardly object. "Apple will be saying 'Okay with us if you want to increase our sales' to AT&T if they do this," said Ezra Gottheil, an analyst at Technology Business Research Inc.

Citing an unnamed source, Fortune claimed that AT&T will subsidize the price of new iPhones capable of accessing the faster 3G data network that the carrier is currently expanding in the U.S. AT&T's $200 rebate or subsidy would be limited to customers who sign a two-year contract; it would not be available through Apple, which also sells the iPhone.

It's very unlikely, however, that Apple would cut its price for the iPhone, Gottheil continued, noting that the profit margin, while in the 35% to 40% range, wouldn't support reducing the customer price by half. Instead, it's up to AT&T to make the numbers work if it plans on subsidizing.

"AT&T may well be saying, 'Hey, it's worth it for us to pay Apple the full price for the iPhone, plus give a piece of change to the consumer," said Gottheil. "And this isn't up to Apple at all anyway. AT&T would say, 'Bring us your iPhone and register, and we'll give you $200."

Apple and AT&T now sell the iPhone for $399 and $499, depending on the amount of storage space; 3G iPhone speculation has touted those same list prices.

Mobile service providers typically subsidize the cost of handsets to get consumers to sign multiyear contracts. Apple, however, has struck deals with exclusive partners that require those network providers to share some of their iPhone subscriber revenue with Apple. None of the current partners -- which include AT&T in the U.S., T-Mobile in Germany and O2 in the U.K. -- subsidize the cost of the iPhone.

Gottheil, who has previously said that Apple "will do what it takes" to meet its often-repeated goal of selling 10 million iPhones during the 2008 calendar year, said today that the $200 price cut might be used to reach that number. "They do what they need to do when they need to," Gottheil said.

Before Apple unveils the next-generation iPhone this summer -- most of the speculation on a launch date centers around the late June one-year anniversary of the smart phone -- the company will also have to wind down the supply of its current models. The iPhone now accesses data networks such as AT&T's using the older, slower EDGE technology. Several weeks before that June date, said Fortune's source, Apple will stop supplies of the current iPhone to reduce inventory. The move could also be a way to avoid the backlash last year when Apple slashed the price of the iPhone only weeks after its introduction.

After that backlash erupted, Apple CEO Steve Jobs apologized for the price cut, and the company issued $100 in-store credits to customers who had already bought an iPhone.

Gottheil pointed out signs that he said indicate Apple is already winding down sales of older iPhones. "In the earnings call last week, there were hints that they were surprised by the demand of the iPhone," he said. During the conference call with Wall Street analysts, Apple's chief financial officer, Tim Cook, confirmed that some U.S. stores had run out of stock during the first three months of the year.

Apple and AT&T declined to comment, with representatives from both companies saying that they do not comment on speculation.

Copyright © 2008 IDG Communications, Inc.

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