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

Apple 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 with Technology
Business Research.

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 multi-year 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 Wednesday 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 that it they do not comment on speculation.

» posted by abennett

Computerworld

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