Free iPhone? Not Soon, Maybe Someday

free sign

When Apple (AAPL) cut the iPhone’s price to $199 from $399, sales doubled. Now at $99, the 8 GB iPhone 3G costs one-sixth the price of the first 8 GB iPhone, and Wall Street expects another sales uptick. So why don’t AT&T and Apple just cut the price down to $0?

That’s the idea that TheStreet.com’s Scott Moritz floats: “…Within hours of Apple’s announcement Monday that it was cutting the price of the old iPhone by half to $99, speculation arose that AT&T would eventually cut the price to $0.”

Well, sure, maybe someday. Eventually, every mobile phone that stays on the market long enough winds up free (or close to it) after subsidy.

But given the iPhone’s wholesale price that AT&T pays — probably $400 or more — and Apple’s image as a premium brand, it doesn’t seem like something either company is in a hurry to offer. The $99 iPhone also serves as a lure for the new $199/299 iPhone 3G S, which both companies want to sell. But it’ll be hard to upsell people to $200 from $0.

Moreover, at $99, the iPhone itself is no longer the price AT&T will need to cut to drive massive adoption. Instead, it will have to do something about its monthly service fees, which, at around $90-100 a month, are simply too high for most people.

Options include an across-the-board rate cut (unlikely), a special smartphone plan that includes some text messaging as part of the bundle (more likely), or a reduced-fee, “lite” data plan for iPhones and other smartphones.

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