The iPhone’s Not So Hidden Costs

You may have noticed by the clues in my last post that, while the new iPhone from Apple is cool, I don’t foresee myself getting one in it’s current incarnation any time soon (soon in this case being the moment it is released in June). I know this may come as a surprise to those who know me. I am usually the first one of my circle of geeks to acquire hot new tech from Apple. For those who have known me a longer time, this will really come as a surprise because I have been a long time fan of the idea that handheld convergent devices such as the iPhone are the future and a key element in the idea of ubiquitous information access. In other words, this is the device I have been waiting for since the demise of my much beloved Apple Newton Messagepad 2100. As a matter of fact, just about every aspect, it is the device I have been waiting for all of my life. That being said, there is one insurmountable barrier to my getting one anytime soon…
It is not just the cost on the front end. When the Messagepad 2100 was released it was almost $1000.00 and I had no problem at the time paying that price. For a long time, I used it as my principle machine. My desktop Mac at home was simply a hub for my Newton. I could easily envision the iPhone becoming the same for me.
That being said, here is the cost breakdown and other items that will be a barrier to me getting an iPhone and, I suspect, many others. I am listing these in the order of the steps that I would need to take to get an iPhone:

  • Getting out of my current carrier contract – $250.00

    The iPhone is a Cingular exclusive. There are many, many people who are not Cingular customers and are locked into contracts that will take them way past June. In order to terminate a contract, most cell phone carriers charge an early termination fee to recover the costs of losing you and to make it difficult to leave.

  • Apple iPhone (8GB) – $599.00

    That pricing is with a 2 year Cingular contract which you must sign up for as you can’t use the phone with any other provider (Apple has a multi-year exclusive deal with them). I used the more expensive 8GB model as that is the one I would get if I were to get one. I should also mention that because Princess Bethany and I are on the same plan with our current provider, I would also have to get a new phone for her on Cingular thus adding to the cost of switching (a situation that, once again, a lot of people are in).

  • Cingular 2year Contract – 140.00 a month

    This pricing is based on the pricing for family plan with Cingular’s data plan for smartphones (SmartPhone Connect Unlimited w/Xpress Mail) This is the closest I could find to match the features on my current contract with Verizon. Cingular appears to break out it’s pricing for certain types of phones though (for instance, the pricing for push e-mail to a Blackberry is almost 50.00 a month!). So who knows how they are going to price all of that data flow to the iPhone. I am betting the price I have quoted above could be higher when that is weighed in.

My point being in all of this is that there are a number of barriers to entry on this product because of the traditional and confiscatory nature of the network providers.
That being said, Apple is a company that is known and respected for their innovation. While the iPhone may be the most innovative product they have ever produced, there are some ways they could bring that innovation to a whole new level:

  • Work with Cingular on customer migration from other carriers.

    Perhaps even offer a rebate to people who have to buy out of their current contracts to switch. In other words, reduce or negate the cost of people switching to a new carrier (Item #1 above)

  • Work with Cingular on keeping the pricing low.

    I simply will not buy a six hundred dollar phone if I then have to sign up for a 140.00 or more a month plan to use it. (Item #3 above)

  • Work with Cingular to throw out the contract model all together.

    The contract model that cell phone providers use today is based on the idea that you are getting a phone at a much subsidized price and therefore they must lock you in for a guaranteed time to recoup that subsidy. I highly doubt that they are in any way subsidizing the cost of the iPhone. Therefore, why must I be locked into a two year contract.

What is needed here in not just innovation in the phone or on the network. What is needed is innovation in the US cell phone industry as a whole. I feel that Apple has the vision and the leverage to be able to do this. Don’t believe me? Just take a look at the fact that they have gotten the music industry to accept selling songs for 99 cents despite the fact that the record companies would like them to charge more than that. If Apple can use their leverage to control those money hungry, litigious, scumbags they can certainly do it here.
My hope is that this really is just the first of a whole line of devices and, short of my above suggestions they come out with a device with all of the features of the iPhone except one… The Phone. I can keep my piece of crap RAZR and remain in the feudal slave state that is Verizon and I can have what I want. But, I suspect, by then my current contract will be up, I will get both Princess Bethany and I an iPhone just as Apple wants me to and all of this complaining will be moot.

3 thoughts on “The iPhone’s Not So Hidden Costs”

  1. Patrick, you have eloquently described some of the same concerns I have about the iPhone. I really want one but the price seems prohibitive. I would like to see a larger capacity for a $599 price tag. Then there is the cost of the wireless plan…I want all the cool internet, email, and messaging features but I cringe to think what the basic plan will cost in order to make use of all the iPhone’s features.
    Unlike you I think I’ll be waiting to see what breaks on this first version of the iPhone… dispite all that… I really really want one. 🙂

  2. I told myself before they announced the price that I would buy it if it were $399. To me, that would be a killer price point. I agree with you that if apple is pricing it at $499/$599 based on the cost of the nano and similar devices it makes no sense to be locked into a 2 year contract if they are not going to discount the price of the device. In that case, if I was required to have a 2 year contract I would probably bite on a price of $299 and have Cingular absorb the rest. I’m sure they won’t be hurting.

  3. I’m impressed with Apple and AT&T’s iPhone plans. Looks like for $79.99 you can grab 900 minutes, unlimited weekends, unlimited data and visual voicemail. The only downer to all the plans is the 200 standard SMS messages. That is crap… however, I believe the plans are better than we were expecting.
    I also love the way Apple has integrated the setup and activation of the iPhone right into iTunes. Get this… you can sign up for new service or transfer you current phone number right in the setup wizard! most transfers take a few minutes and not more than 6 hours. That is pretty amazing. If you are a new customer with a new number it gives you your number and activates the iPhone immediately. Cool stuff man. Now, if they would only drop the price on the hardware.

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