Apple's $199 iPhone: The Stupid Truth

That halo sure didn't last long.

No sooner had folks started gushing about Apple's (Nasdaq: AAPL  ) new $199 entry-level iPhone -- nearly identical to the current generation $399 model, but with added features like faster 3G connectivity and built-in GPS functionality -- than reality began to kick in.

How dare AT&T (NYSE: T  ) charge $10 a month more for speedier 3G access? Conventional Web access providers like Earthlink (Nasdaq: ELNK  ) charge more for broadband connectivity than dial-up hookups, but somehow, AT&T became greedy in the eyes of iPhone fans.

Since a 24-month contract is required, buyers may be getting a phone for $200 less up front, but will pay $240 more over the course of two years. "The iPhone price cut is a price hike in disguise," became a popular complaint.

Silly cynics. Don't they understand the value of money? An extra $200 in your pocket today can be worth more than $240, if invested properly over the next two years. That would require after-tax annualized returns of 10% or better, but it's certainly possible.

To be fair, chipping away $10 a month from the original $200 saved -- to cover the extra cost of the new unlimited 3G data plan -- will require an after-tax return closer to 20%. That's certainly a higher hurdle than historical market returns, but what if the bellyachers take the $200 saved and buy shares of Apple instead?

That's not a far-fetched notion. Apple shares have soared 50% over the past year alone. With AT&T subsidizing cheaper iPhones in exchange for Apple forgoing future royalties, the iPhone is likely to grow well beyond its current base of 6 million users. Apple now has the price to compete against both conventional handset makers like Nokia (NYSE: NOK  ) and smartphone giant Research In Motion (Nasdaq: RIMM  ) .

The halo effect that helped Apple's personal-computing market share rise along with the popularity of its iPods may soon be revisited, if the 3G iPhones prove successful.

Why quibble about an extra $10 a month? In fact, if you think that it won't be much of a barrier to entry, buying Apple -- and AT&T -- may be your best call.

Further Foolishness:

Apple is a Stock Advisor recommendation. Find out why with a 30-day trial subscription offer.  

Longtime Fool contributor Rick Munarriz loves his iPhone, and he's weighing the upgrade decision. He does not own shares in any of the companies in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


Read/Post Comments (6) | Recommend This Article (10)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 13, 2008, at 12:51 PM, kbrening wrote:

    Right ON!!! Steve is still the Apple of MY eye...

    All of the recent downturn in Apple's stock will most surely reverse itself in a matter of weeks, if not days-- when people realize how many more millions of people the iPhone will pull over to the entire Mac and Apple platforms!

    Just look at what the iPod did for Apple's computer sales :) Plus, look how often consumers replace their phones-- that's no small change either, once Apple gains new presence in over 70 world markets ;p

  • Report this Comment On June 13, 2008, at 2:48 PM, nretamp wrote:

    Only problem is 3G has a horrible coverage area. Why should I have to pay an extra $10/month if my major phone usage will be out of 3G coverage. I'm fine paying extra for faster service... when I can get it. But the 3G map is pretty spotty and I don't want the price hike for something I'm not getting to use every time I pick up my phone.

  • Report this Comment On June 13, 2008, at 2:53 PM, nretamp wrote:

    I can't believe I gave up my email for "other products and sponsors you might be interested in" just so I could sign up this site and post that comment. Now I'll be paying an extra $10 bucks a month to slowly download crappy spam emails from the fool and its partners, outside of the 3G coverage area on the new iphone. Great...

  • Report this Comment On June 13, 2008, at 4:32 PM, SimchaStein wrote:

    $10/mo: Is this $240 for 2 years or 30 cents a day for effective use of web and email? Remember the iPhone itself makes the UI nice and effective. is it worth 30 cents a day to have this? And be fair to the carriers. They will have CAPEX to pay for all the back-end traffic increase. iPhone users increase data traffic by 2000%.

    This is a good deal. Excellent value for the user. Excellent cost recovery for the supplier.

  • Report this Comment On June 13, 2008, at 4:50 PM, planetww wrote:

    Bring on the iPhone! This is a killer cell phone that is blowing the competition out of the water. I think the 10 dollars a month is reasonable for a faster iPhone. Both iPhone and AT&T stocks will rise in price during the launch. Now is the time to load up on the bargin prices. Steve Jobs has not let us down yet.

  • Report this Comment On June 14, 2008, at 3:22 AM, leehericks wrote:

    The smart phone unlimited data plan for Softbank in Japan (Softbank will be selling the iPhone 3G next month) is 9,800 yen, or nearly $100 usd.

    I'm hoping Apple will make them offer a lower iPhone data plan, but I doubt it.

    Interesting when you add some perspective, don't you think? If I get the iPhone next month, I'll likely be paying $150/month minimum. So quit complaining about AT&T.

    (I pay $6 a gallon for gas here too!)

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