iPhone News Updated

Smartphone buyers in the US will be able to buy a version of Apple’s new 3G iPhone for $599 without committing to a two-year service agreement, AT&T, the exclusive supplier of the iPhone in the US, said yesterday.

AT&T, which is locked in a fierce battle for customers with Verizon Wireless, the second largest US mobile operator, is counting on the new iPhone to give it the same subscriber boost the original iPhone did when it was launched last July.

The second-generation iPhone, which includes a number of technological improvements, including the ability to work on the latest 3G mobile networks, is due to go on sale next week.

By selling a version of the new iPhone without a two-year contract, AT&T and Apple are hoping to forestall sales of “hacked” versions which plagued sales of the original iPhone when it was launched in the US last year.

Many unauthorised “unlocked” iPhones are believed to have found their way overseas and possibly contributed to lacklustre sales in Europe. This time, Apple and its network partners have changed the business model from revenue sharing to the traditional subsidy model found in Europe and North America.

Instead of Apple taking a share of the monthly service charge that iPhone owners pay to the network operators, the network operators will pay Apple an undisclosed subsidy for each iPhone they sell.

Analyst estimates for the size of that subsidy have ranged from $150 to $450, but the pricing of the unlocked 3G iPhone, however, lends credence to estimates by iSupply, the California-based market research firm, that the subsidy is about $300.

The calculations by iSupply were made using the cost of building the new iPhone, which it put at about $173, based on an analysis of components used. “At a hardware bill of materials and manufacturing cost of $173, the new iPhone is significantly less expensive to produce than the first generation, despite major improvements,” iSupply said.

AT&T has acknowledged that subsidising the new iPhone will reduce earnings in the short term, but most analysts, including Craig Moffett of Sanford Bernstein, believe AT&T will nevertheless earn an attractive return on iPhone sales in part because of monthly service plan charges.

Apple has targeted total worldwide iPhone sales of 10m units by the end of this year, a figure analysts believe is achievable based on expected sales of 5m second-generation handsets.