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New iPhone will cost you a little more, not less

The new iPhone will cost less than the current model, but the service plan for it will cost $10 a month more, meaning an additional $240 over the life of the two-year contract with AT&T Wireless.
Image: Apple iPhone
The monthly service plan for Apple's new iPhone 3G will be $10 more a month.Apple Inc. via AP

The new iPhone, praised for being cheaper than the current model, will actually cost consumers more because of a higher monthly service fee by carrier AT&T.

The service plan will cost $10 a month more, meaning an additional $240 over the life of the mandatory two-year contract with AT&T Wireless, the iPhone’s exclusive carrier.

Consumers with the current generation iPhone pay $20 a month for an unlimited Internet and e-mail use, and can send up to 200 text messages as part of that plan. However, those who buy the new iPhone, due out July 11, will pay $30 a month for unlimited Internet and e-mail. It is not clear yet whether text messaging will be part of that cost, or an add-on.

“That’s part of the pricing we’ll get into more detail about as we get closer to launch date,” said Mark A. Seigel, executive director of media relations for AT&T Mobility. “That’s not something we’ve discussed yet.”

In a June 11 report about AT&T and the new iPhone, research firm Current Analysis said that "Consumers will take a hit on the new iPhone data service plans ... This may not impact new customers as they would not know the difference, however, to upgrading customers, the additional $10 may be an annoyance."

The firm also said if AT&T's other smartphone data plans are any indication, it is unlikely that text messaging would be included as part of the new iPhone data plan. AT&T charges $5 a month for up to 200 text messages for its other smartphones.

The new iPhone was unveiled Monday by Apple, which said the popular device will sell for $199 for an 8-gigabyte version, and $299 for one with 16 gigabytes.

Consumers and most analysts were delighted by the price drop, with the difference to be subsidized by AT&T. Current pricing is $399 for an 8-gigabyte iPhone, and $499 for the 16-gigabyte version.

Some of that excitement may be offset by the reality of the new monthly service plan. The lowest-priced iPhone plan, now $59.99 a month, with $20 of that for data and the other $39.99 for 450 voice minutes, will go to $69.99 a month.

AT&T points out that the data plan for the iPhone was lower than comparable plans for other smartphones, such as the BlackBerry.

“That $30 price point for Internet and e-mail is not uncommon,” said Bill Ho, research director for Current Analysis’ wireless services. “AT&T is aligning that plan with the prices for its other smartphones like the Treo or the BlackBerry.”

Plus, he said, AT&T needs to make up for the subsidy of the new iPhones, which the company said this week will “result in some pressure" on AT&T's margins and earnings.

AT&T’s data pricing is similar to plans offered by some other carriers. T-Mobile’s BlackBerry Unlimited Plan, for example, is $39.99 a month for unlimited Internet and e-mail. Sprint has a smartphone plan that includes unlimited Web surfing and e-mail, and 450 minutes a month, for $69.99 a month, the same price as AT&T's new iPhone plan.

Overall, it will cost a minimum of $40 more for the new iPhone and contract, compared to the current pricing. A customer with the new 8-gigabyte iPhone will spend $1,878 over the life of the contract, compared to $1,838 for the current 8-gigabyte phone and agreement. A customer with the new 16-gigabyte iPhone will spend $1,978 over two years, compared to $1,938 for the a first-generation, 16-gigabyte iPhone and contract.

Without AT&T's subsidies, the price difference could have been even greater. But Apple is facing a number of challengers in the smartphone market, including competition from Research In Motion, which makes BlackBerrys, as well as Samsung, Sony, HTC and LG, all due to have new iPhone-like phones out in the weeks and months ahead at price points of between $100 and $200.

What if you just bought an iPhone?
Those customers who bought iPhones since May 27 and later will be eligible to turn in their phones and get a new iPhone — and a refund, less a 10 percent re-stocking fee, for what they paid for the first-generation iPhone, Siegel said.

“We want to be fair to people who only recently bought the current iPhone and who want to upgrade to a new iPhone,” he said.

“So what we’re saying is, if you bought the current iPhone on or after May 27, and you turn it in before Aug. 1, we will set you up with a new one and you’ll start a new two-year contract."

If a customer bought an iPhone before May 27, and wants the new iPhone, they will have to purchase it, with no trade-in being provided, and sign a new, two-year contract, Siegel said.

Those customers who are, say, six months into a two-year contract with AT&T, and who want the new iPhone, but don’t want to sign a new two-year contract may have the option to buy the phone at full price. What that price will be has not been set yet, Siegel said.

The new iPhone has 3G, or third-generation wireless, which means it will be capable of handling Web surfing and e-mail at a faster rate than the current iPhone, which is 2.5G.

AT&T’s 3G network, unlike that for phones with 2.5G, is not completely built out yet. The company said its 3G network is available in 280 “leading” metropolitan areas in the United States, and that by year-end, it should be in 350 metropolitan areas.

Customers who want to know if their area is included can check AT&T’s Web site.