AT&T's iPhone bet not a big gamble
Analysis: Carrier to pay more up front, but analysts see big payoff
By Jeffry Bartash, MarketWatch
Last update: 3:00 p.m. EDT July 10, 2008
WASHINGTON (MarketWatch) -- By slashing the price of the iPhone to $200, AT&T Inc. hopes to lure millions of new customers to its wireless service, already one of the largest in the nation.
But the cost is steep -- perhaps as high as $2 billion over the next year and a half.
Is it worth it? "Absolutely. You bet," said AT&T spokesman Mark Siegel.
AT&T's enthusiasm for the iPhone, which arguably has revolutionized the nascent market for handheld computers, is easy to explain. The device has given AT&T a leg up on rivals, generated an avalanche of publicity no money could buy and, most important, prodded iPhone owners to spend much more than the average wireless user.
It's hard to find industry analysts who would color this rosy hue a darker shade. While Wall Street is less enthusiastic about the initial cost of the new strategy, the prevailing view is that AT&T will more than recoup the cost of heavy subsidies for new buyers.
"This is going to bring more customers in the door," according to analyst Todd Rethemeier of Sur Terre Research.
The new 3G iPhone from Apple Inc. launches in stores across the globe on Friday. The device runs on faster 3G networks and carriers a lower price point than its predecessor. It also comes stacked with applications designed to appeal to more corporate users, such as the ability to actively synchronize with Microsoft Outlook.
Main Street appeal
When AT&T and Apple launched the first iPhone last summer, the device was priced at $500 to $600. That was quickly reduced in fall 2007 to $399 for the least-expensive model. So far, more than 6 million iPhones have been sold.
Yet since the vast majority of consumers spend $100 or less for phones, AT&T and Apple effectively locked themselves out of most of the market. The sharp price reduction in the second-generation iPhone underpins a strategy to reach a much wider audience.
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