On Subsidization: AT&T is Not Ripping Off iPhone 3G Owners
There is already a lot of noise over this all around the ‘net. Owners of the iPhone 3G saying they’re getting ripped off, or not being treated like “loyal customers,” because they’re not being offered the fully subsidized price for the new iPhone 3G S. In reality the AT&T upgrade pricing is pretty much like all phone subsidies in the U.S. (and, for that matter, many other parts of the world). Actually, it’s a little better.
The unsubsidized price of the iPhone 3G and S models is $599/$699. The ones complaining most are iPhone 3G buyers who bought it for $199 shortly after its launch last July. Even then, they’ve only had the phone for 11 months. They have less than one year completed on a two-year contract. At best, they’ve only “earned back” half the $400 subsidy, yet they somehow feel entitled to it all, as if AT&T should just swallow the remaining $200.
For all the complaints about being ripped off, the truth is AT&T is actually being pretty good about this. When 3G owners have a year under their belt, AT&T is willing to say, “You owe us another year of subsidy ($200), but if you ink a new 2-year contract for the 3G S we’ll provide you the second year’s subsidy ($200).” That’s why 3G owners are being offered the new models at $399/$499 when they hit their 1-year anniversary.
Why do I call the above “pretty good”? Because typically you have to go 18 months or more before a carrier is willing to provide a subsidy for a new purchase. That AT&T is willing to do so at 12 months is about as “generous” as a U.S. carrier gets. Yes, it’s only half the subsidy, but you only completed half the time on your current phone.
I’m not asking you to agree with the subsidized sales model, or be happy about it. Nor am I trying to convince you it’s good — none of that is the point. The point is it’s the model we have, and a 3G owner is not paying extra or getting ripped off because of it. Do the math. If you bought the 3G at $199, and one year later bought a new 3G S at $399, at the end of that new 2-year contract you’d have paid $600 for both phones, and received $600 in subsidies. That amounts to $200 in subsidy for each year, which is exactly what AT&T offered you in the first place (and what you agreed to).
What’s strange about all this is that, even though this upgrade maze exists with all carriers, only Apple makes a phone so compelling people want to get a new one after only a year, so the upgrade policy is getting the spotlight on it and grabbing all this attention. Maybe the outcry will compel some changes in it, though it’d likely require all the carriers to come on board for it to work.
Meanwhile, this is generally the way it is for any heavily subsidized phone on any carrier. If someone buying a Palm Pre or BlackBerry Storm with full subsidy today thinks they can get that same full subsidy on a newer model before putting most of their time in, they’re kidding themselves.
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Lyman on June 12th, 2009 at 1:15 pm
the only issue I have with this is that I didn’t get it subsidized last year, I paid full price, and they are still wanting to hit me with that again, instead of even a slight upgrade price.
kijubi on June 12th, 2009 at 1:20 pm
I have to agree. I paid full price as well, and it’s just not fair.
frozen on June 12th, 2009 at 1:23 pm
Well actually AT&T is ripping people off if you ask me. I live in Romania and i have and Orange contract. If you buy a phone with a 2 year contract and get that phone at a subsidized price, you are allowed to buy another subsidized phone after 12 months have passed without having to pay any extra money for it except the subsidized price for the new phone.
Joeypk07 on June 12th, 2009 at 1:28 pm
Frozen, but are your subsidies the exact same as AT&Ts? i.e., is Orange subsidizing approx 2/3 the purchase price? Or is it possible they make more on the back end with higher data/rate fees? It’s a little difficult to compare directly especially with exchange rates etc.
JD on June 12th, 2009 at 1:36 pm
The only people that are getting ripped off is the ones that purchased the 3G at full price and still are under the 2 year agreement. Those details will probably be worked out store by store.
The people who purchased the 3G at the “subsidized” price are getting a fair trade at the 12 month mark. They think the iPhone is different than any other new phone model any manufacturer comes out with. It’s not, your bound to the same exact contract rules as someone buying any phone from AT&T or nearly any of the major wireless carriers (Sprint, Verizon, T-mobile) ALL have restrictions on how early you can upgrade if you did not pay full price for a phone.
The people that can’t afford the iPhone in the first place are the first to kick and scream because likely they won’t get mom and dad to pay for the new phone and they will not be the “cool kid” anymore. Welcome to reality boys and girls.
People expecting others to bail them out when they want something they can’t afford… oh wait that pretty much describes our economy. Cars, homes, electronics (max’d CC’s) buying things we cannot afford and then crying about it because we we never could afford what was purchased. Start a petition to Obama.. maybe he will bail you out too!
Weldon Dodd on June 12th, 2009 at 1:36 pm
@Layman & @kijubi – how is that you paid full price and are still not eligible for a subsidy?
And one point of clarification to the article. AT&T makes you eligible for a new subsidy at 20 months into a 24 month contract, so you can renew before the contract is up. This is the case at least on my family plan with 5 lines.
Staff Comment Tom Reestman, TheAppleBlog on June 12th, 2009 at 1:36 pm
Lyman, kijubi,
There are always exceptions, and I don’t know what they may be in your case. As a start, did you pay full price because you were not eligible for a subsidy then? Maybe you still aren’t for some reason.
What I outlined in the article is what I’ve seen expressed, and as I understand it. Lots of people — even those complaining — have confirmed this. But there will always be exceptions because other conditions can apply (passing a credit check, being a customer in “good standing”, etc.).
Principle on June 12th, 2009 at 1:37 pm
Okay they policy from AT&T was always one year then you were eligible for an upgrade…I purchased my 3g on release day so after July 11 I should be eligible correct? WRONG AT&T has changed it’s policy to show that you are eligile somewhere in between 18 – 22 months so that they can charge us more for the new 3gS….The 18 – 22 month was quoted to me by multiple AT&T associates and they stated “it is up to us when you are eligible” not any other reason whether you paid full price or not! SO YES THEY ARE RIPPING PEOPLE OFF. I would be 100% okay with the 1 year eligibility policy but the policy of “we choose when you can” is just wrong they use that to flex dates around releases to get people to pay full price and still lock them into a full 2 year contract.
Weldon Dodd on June 12th, 2009 at 1:38 pm
Oh, and a loud “AMEN” to the general point of the article. If you got an iPhone for $199 last year, what are you complaining about?
fitzage on June 12th, 2009 at 1:38 pm
Actually, it’s not a year. At least not for me. It’s 18 months. Or perhaps it’s based on when my wife got her iPhone added to the plan.
Lyman, and kijubi: how did you pay full price? Did you actually pay $500 or $600 instead of the $199 or $299 subsidized price?
Staff Comment Tom Reestman, TheAppleBlog on June 12th, 2009 at 1:40 pm
Weldon,
“AT&T makes you eligible for a new subsidy at 20 months into a 24 month contract”
Thanks for the update; I’d seen some people say it was 18 months. The point is that to get FULL subsidized pricing you need to be well into the 24 month term; simply being at the half-way mark isn’t enough (nor should it be). Still, giving you half the subsidy when you’re half-way through isn’t a bad deal. You lose nothing, hence my contention that there’s no rip-off.
John on June 12th, 2009 at 1:47 pm
Wait, if someone bought the 3G at full price, then why are they still in a contract? I thought the contract was to fulfill the subsidized price. If you paid the full $600 or whatever for a 3G, shouldn’t you NOT be in a contract? Or am I missing something?
Weldon Dodd on June 12th, 2009 at 1:51 pm
@Principle – AT&T used to offer 1 year contract pricing, but now everything is 2 year contract pricing. There may be some deals in the retail stores for 1 year contract pricing (it seems like I remember seeing this, but I’m not gonna drive to the store to check). The iPhone is only available with a 2 year contract (and always has been). The 18-22 month re-up window (my personal contract is 20 months) is a reward for loyal customers. AT&T has discretion to REDUCE the time before you are eligible for another subsidy depending on how much you spend, etc. What’s wrong or unfair about that?
frozen on June 12th, 2009 at 1:51 pm
Joey it doesn`t really matter, because the only “forced” plans were those for the iPhone. I don`t realy know what their subsidy percentage is but let`s say i buy a 200 euro phone and get a 2 year contract, the subsidy cuts the phone price in half but the contract is 3 euro plus VAT a month, and in 12 months i will be eligible to buy a new phone even though i haven`t completed the contract for the first one.
I don`t really know how they plan it but they allow you to buy a subsidized phone at a “thank you” price as part of their recognition of being an Orange client at 12 month intervals. My girlfriend bought 2 subsidized phones at about 14 months apart, both of them had their prices cut by more than half.
Weldon Dodd on June 12th, 2009 at 1:54 pm
@Tom – I think Principle has the right of it. The re-up window to be eligible for a new subsidy can vary from 18-22 months. My personal account comes up at 20 months but some might have more or less time to wait it appears.
I absolutely agree with you on the basic premise that you have to fulfill the contract to be eligible for another subsidy. No rip off.
None on June 12th, 2009 at 2:00 pm
Why are people acting like their 3G will just disappear in a puff of smoke the second they buy a 3GS? There is a healthy market for 3G phones out there… hell, I’m expecting to sell my Original iPhone and almost pay for my 32GB 3GS Subsidized price…
Steve on June 12th, 2009 at 2:02 pm
So maybe Apple could have mentioned it during their keynote, so we didn’t all get so excited and then totally let down. I’d bet most if not nearly all keynote viewers at WWDC have a 3G and got built up then deflated. Poor management of expectations.
Ryan Burke on June 12th, 2009 at 2:06 pm
Uh, whoever paid full price for an iPhone last year AND ended up under a contract for scammed, and probably did not buy the phone at AT&T (owned) or Apple. Full price phones were for no contract, and I think that was offered March of this year.
I don’t see what the fuss is about. All you have to do is go to an AT&T (owned) store, if you bought the phone at Full Price w/ No contract, and they’ll gladly sell you one with a contract for the subsidized price… But know that you have 18 mo. before you can upg. your phone.
Ryan Burke on June 12th, 2009 at 2:11 pm
Correction, there’s “full price” and there was “unsubsidized”. Here’s the lo-down:
Full Price (w/ no contract, as of March 09)
8GB iPhone 3G for $599
16GB iPhone 3G for $699
Unsubsidised (you didn’t qualify, early upg)
8GB iPhone 3G for $399
16GB iPhone for $499
Staff Comment Tom Reestman, TheAppleBlog on June 12th, 2009 at 2:12 pm
Steve,
Dragging Apple into this in my opinion makes zero sense. It’s be like yelling at RIM to get better subsidies on their Verizon offerings. It won’t help. Or yelling at AT&T to get iPhone OS bugs fixed quicker. Each company has their role to play and what they’re responsible for. The subsidy game is the domain of the carrier (as is MMS and tethering, for that matter). Apple could plead, beg, and cajole (maybe they are), but the fact is it’s the carrier’s decision.
As for the price, the asterisks are there for a reason. Again, not saying I like it (or that you should), but it is what it is.
PO'D on June 18th, 2009 at 12:30 am
Apple is guilty of false-advertising.
The only price they tell you is the price you expect to pay. This is WORSE than bait-and-switch, where one product is advertised and another of higher price is substituted for it when you go to the store to buy it. The real price is more than DOUBLE the ADVERTISED price! That is FRAUD! I did not pay ANY extra cost the last time I upgraded, they just started a new 2-year contract, when I was not through the old one. I got ripped off by paying $200 extra the first time around, on the original iPhone, when they dropped the price by $200 a month after I bought mine. I got the $100 refund (I’m still out $100) from Steve Jobs, but he’s probably not going to do that again this time, he’s probably dead already, has anybody seen him lately? He’s with Elvis. He’s left the building. We ARE being ripped off, I won’t buy the 3Gs, not now, probably not ever! I had to select the 5% gray text on the white background in order to read the “fine print”, but that doesn’t change the fact that Apple has repeatedly MIS-LED us about the price as much as possible. I’ll never stand in line for an iPhone again. I’m getting that Verizon thing when my contract is up.
AND I AM AN IPHONE APP DEVELOPER!
If you have a first-gen iPhone, it’s not worth anything anymore. Let’s bring them to the AT&T store and smash them on the ground in front of the stores! Do it when the TV cameras are rolling, all at once. Let’s picket them! Hack the Planet! Hack the Planet!
Staff Comment Tom Reestman, TheAppleBlog on June 12th, 2009 at 2:19 pm
Ryan,
I don’t see it that way. In my article your “full price” and my “unsubsidized price” are the same.
What you call unsubsidized in my opinion IS subsidized, to the tune of $200, as I explained.
Finally, there’s what I called “fully subsidized”, which is the $400 subsidy that brings the phones to their advertised prices of $199/$299.
Steve on June 12th, 2009 at 2:22 pm
Tom – I’m not trying to drag Apple into it. But it’s poor brand and expectation management to wave a piece of meat around in front of a bunch of hungry dogs telling them how awesome it’s going to taste, then tell them that they can’t have it for six months. And they dragged ATT into it themselves by announcing pricing at $199 and $299. That’s not the price, that’s the ATT subsidized price, which we all assumed we’d be paying.
Scott Graham on June 12th, 2009 at 2:22 pm
I feel like I deserve the subsidized price after purchasing my 3G phone in July because even though AT&T subsidized the phone, how much do these companies make from TXT messaging plans? Not only that, you still are renewing a two year contract. I think all the carriers are shiesters. That’s just me though.
Khürt on June 12th, 2009 at 3:03 pm
Read the contract before you agree to the terms. To call it a rip off means that AT&T violated the terms of the contract you both agreed to. Did they? Seems the whiners want to get out of their contract terms.
Salemander on June 12th, 2009 at 3:06 pm
You are saying the “outcry” may change things, but then you are criticizing people for making an outcry (i.e. all cellphone users pay the same high fees, so suck it up). The only way a carrier is going to change what it charges is if people start refusing to pay them altogether. And given that the crackberry generation will then have no way to get their fix, what are the chances? [Can you say 'tacit collusion' boys and girls? Nice try]
Salemander on June 12th, 2009 at 3:09 pm
“That’s just the way it is/ Some things’ll never change/ That’s just the way is/ Ah but don’t you believe them….”
kijubi on June 12th, 2009 at 3:16 pm
@Tom – I purchased the phone online and did not obtain an AT&T contract right away. I had to wait for my other account with T-Mobile to end before I could setup the AT&T account. So, I did not use any of the subsidization (is that a word?). Now they are telling me I can get the new iPhone 3G S for $499 (32gb), and eligible for a full upgrade on June 29th. Apple says the full upgrade grants me the right to purchase for $299 but AT&T says it will still be $499. A bit of confusion between the companies is all I can see.
kijubi on June 12th, 2009 at 3:17 pm
And I don’t like it :)
bamhm182 on June 12th, 2009 at 4:26 pm
Thanks for explaining it. It makes more sense now.
Eric Fain on June 12th, 2009 at 6:27 pm
I would agree with this if were not ALSO asked to sign another two year agreement. This is a bad attempt to save face.
Clarence H Baisdon on June 12th, 2009 at 7:01 pm
We here all sort of statements about “subsidized” price, but we have no idea if that is correct or made up.
I think it is another case of corporate greed.
Staff Comment Tom Reestman, TheAppleBlog on June 12th, 2009 at 7:09 pm
Eric,
“I would agree with this if were not ALSO asked to sign another two year agreement.”
The only reason they’re subsidizing you is because you DO sign an agreement. If you don’t agree to stay on their network for two years, why would they subsidize the phone at all?
biz on June 12th, 2009 at 7:50 pm
“What’s strange about all this is that, even though this upgrade maze exists with all carriers, only Apple makes a phone so compelling people want to get a new one after only a year, so the upgrade policy is getting the spotlight on it and grabbing all this attention.”
Hear hear. I do wish that the innovation behind Apple’s product design would also drive it to find — or catalyze — similarly innovative telecom partners.
MH on June 12th, 2009 at 9:58 pm
I am surprised at the outage in this situation. It’s certainly nothing new in the cellular business. A few years back I had a Treo 650 on Verizon, which I had purchased on a subsidized deal with a 2-year contract. When the Treo 700p came out, I was still under contract on my original 2 year agreement, and Verizon hit me up for full retail in order to upgrade the phone. Nothing new here with the iPhone and AT&T.
I agree with the point made earlier: I think the only reason this particular situation seems to stand out is that Apple is actually making phones that people want to upgrade to every year.
mike mike on June 13th, 2009 at 12:53 am
ARPU…what does that mean? I asked an at&t rep and the person told me that it is Average Revenue Per User. OK, so what? Well, if I want an iPhone at one year, I can get one if my ARPU is above $100 with at&t. Can do it every year is what this person told me. So, what is your ARPU? What do you pay each month to at&t before taxes? If it’s less than a hundred dollars, than is your reason why. When I asked how long this has been the case, person told me more than a year and a half. One other thing, if I wanted a blackberry bold, the cost would be 274 after 100 dollar rebate, which is $75 dollars more than someone else who just signed up for a contract. Then I asked how much the subsidy for the Bold is, it’s $150 dollars…the iPhone? $400 dollars.
All seems to make sense now…MM
Howie Isaacks on June 13th, 2009 at 8:13 am
I can see the point on this one. My beef with AT&T is that they are not allowing tethering with iPhone 3.0 at this time. They knew this capability was coming, and they knew that this would be something that customers would want. They wouldn’t behave that way if Apple had another carrier in the U.S. Competition would light a fire under their ass to get their network ready, and to lower their prices.
Johnson on June 13th, 2009 at 8:57 am
Finally, some common sense! A great, great post. Now if only those selfish little hipsters would stop whining and get in touch with reality….
Frank on June 13th, 2009 at 11:23 am
I was under the assumption, from AT&T, that I hit the upgrade eligibility after one year into a two-year contract (not 18-22 months). I had an iPhone stolen and talked with AT&T representatives and he told me that if I could hold out for three months with an older phone that I would again qualify for the subsidy on an existing phone or on a new phone.
I am hearing now that I will not qualify for the same subsidy after one year.
Neurotic Nomad on June 13th, 2009 at 2:37 pm
I don’t understand how anyone who claims to have switched to at&t to get the iPhone can call themselves “loyal” half-way through their first contract. You haven’t even held up your end of THE FIRST DEAL you’ve made with them, but you are “a loyal customer” ?
To quote John Stossel: Give Me A Break!
1st Gen iPhone customers may have a little to complain about but 3G customers who just joined at&t 11 months ago are behaving like entitled brats. I can’t wait until the iPhone is no longer The It Gadget – so the trendy folks will go away.
Raghu on June 13th, 2009 at 8:50 pm
JD – …..”They think the iPhone is different than any other new phone model any manufacturer comes out with. It’s not, your bound to the same exact contract rules as someone buying any phone from AT&T “…..
Then why on earth they don’t act as any other phone. I am ready to pay the additional upgrade price. So, I own my existing phone. Then why the hell unlock option not provided for the phone. I should still stick to AT&T with previous iphone for which I have paid my full price…. GROW UP.
Emory Dunn on June 14th, 2009 at 9:43 am
Maybe I’m missing something… just because there is anew iPhone does not mean you have to upgrade! Externally the 3G and 3GS are the same so if it’s really that big a deal (and you don’t have the money) to have the “latest and greatest” just lie: “Oh, you like my phone? It’s and iPhone 3GS, let me show you some non-specific detail that’s cool.”
Or, look at it this way. Someone who bought the original iPhone for full price and then bought a subsidised iPhone 3G paid a ton of money and they didn’t complain. This is the same thing, just in reverse. You got the subsidised phone first.
Honestly people, stop complaining. The iPhone 3G is a great phone. If recording video and having a larger HDD is that big a deal just suck it up and buy it. You don’t complain about an iPod Touch costing so much (Ok, maybe you do) but you look at it and say “That’s the price. If I want this device I have to have the money.”
Simon on June 15th, 2009 at 2:31 am
Wow. What with the “why can i upgrade Tiger for $29?” crowd as well… I know there is a recession. I know that money is tight. You signed the contract. Simple. As. That. Tom is correct. AT&T aren’t ripping anyone off. They may have made a rod for their own backs with the last iPhone upgrade, but I have never seen a phone company offer an upgrade on a new phone because a new model is out – excepting the last iPhone! Ther are an awful lot of “something for nothing” types out there…
mxs on June 15th, 2009 at 12:41 pm
People,
it’s just a silly phone. It’s not your livelihood in jeopardy. Common ….
LOL
Billybob on June 15th, 2009 at 6:34 pm
The thing is, iPhone users are paying premiums that no other current AT&T phone owner has to. Mandatory $40/month internet, and ridiculous texting pricing should have them making up their subsidizing costs rather quickly I’d think, and then leave plenty to spare at the end of the contract.
Not a big deal to me in any case… I’ll pay full price for the phone, then in a year when iPhone is not exclusively tied to AT&T, I’ll switch to another carrier that offers better rates. Coincidentally, AT&T’s contract with Apple expires in one year, from what I understand… almost exactly when my contract expires if they don’t subsidize the cost of my new one. ;)
primedef on June 17th, 2009 at 10:21 am
My thing is this apple should have announced there new iphone 3GS when they announced the new software! I think they were screwing the customers by not letting them know! Now people keep talking about subsidized pricing which makes sense for ATT but not to customers! How would ATT loose money buy letting you upgrade your phone it seems like a good strategy to me to let you upgrade and extend your contract? Also if you paid full price for your iphone this year in 2009 you are not getting subsidized pricing anyway so you paid full price and you signed up for another 2 yr contract! I think either way you should be able to up grade and get some kind of discount and especially if you bought your iphone this after hearing about the software upgrade. I paid full price for my iphone 3G why should I not be able to upgrade at a discounted rate to the iphone 3GS?
eezing on June 18th, 2009 at 1:35 pm
Here’s where this article goes south:
“At best, they’ve only “earned back” half the $400 subsidy, yet they somehow feel entitled to it all, as if AT&T should just swallow the remaining $200.”
I don’t understand why someone hasn’t argued this point:
The iPhone market price (sold without service) per unit does not equal Apple’s returns per unit from an iPhone sold with service. In other terms, Apple makes more money off of an iPhone sold without service on a per unit basis than in any other case; however, Apple makes more money as a whole through At&t because the amount of units sold is far greater. That being said, that the kick back that goes to Apple from At&t is considerably less on a per unit basis; furthermore, it does not equal $600 per unit.
Simple: Supply & Demand.
R. U. Kidding on June 24th, 2009 at 5:31 am
Seriously, isn’t AT&T making enough off of all those minutes with all those iPhone customers? Apple, c’mon. I had one of the first iPhones ever to come out, then dropped it in my Big Gulp (that was a $399 Big Gulp). So, last year I just got a cheap phone through AT&T. They tell me now I’ll be eligible for an upgrade to the iPhone3GS in August 2010? R. U. Kidding? Just another reason I’ve never liked AT&T. Apple, get another long distance carrier. I’ll bet they’d be more than happy just to make a mint off of all the new customers through monthly charges.
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