AT&T Waves the White Flag

Welcome to another iPhone Launch Day, Fool. Right now, around the country, Apple (Nasdaq: AAPL  ) is selling the new iPhone 3Gs -- previewed earlier this month at the company's annual Worldwide Developer Conference. Sales could be bigger than expected.

New features such as cut-and-paste and enhanced search could fuel demand, sure, but more important could be AT&T's (NYSE: T  ) decision to relent when it comes to pricing for existing iPhone users. Ma Bell will now offer fully subsidized phones to those who've been under contract for at least one year, VentureBeat reports.

Hello? Cupertino calling ...
Did Apple have anything to do with this? I'm honestly wondering. As loud as the outcry was on Twitter, I'm not convinced that AT&T would fly the white flag without nudging from Apple. Price cuts never come cheaply.

Unless you're Apple, which has been known to collect more than $600 for each handset sold. Ma Bell gets a share, too, but also assumes more risk, thanks to subsidies. Why take on even more risk by cutting prices?

There's no easy answer to that question. But we know that both Ma Bell and Mr. Mac each have incentives to sell more handsets. AT&T doesn't want to see Verizon (NYSE: VZ  ) selling iPhones, and Apple doesn't want to cede ground to Research In Motion (Nasdaq: RIMM  ) or Palm (Nasdaq: PALM  ) , which has experienced success with its new Pre smartphone.

Price cuts are a retreat, yes, but they're also a strategy -- one that, here, seems likely to work.

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Fool contributor Tim Beyers had stock and options positions in Apple at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. The Motley Fool is also on Twitter as @TheMotleyFool. The Fool's disclosure policy can't talk right now -- it's in the middle of a hand. Check.


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  • Report this Comment On June 19, 2009, at 1:51 PM, plange01 wrote:

    there are plenty of good smart phones on the market now. plenty of choices none really beter than the other....

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