iPhone Nerds Whine That They Can't Get Free Stuff

iphone guy att store

Since most of the Apple iPhone 3G S‘s features — announced yesterday — were known ahead of time, much of the reaction from WWDC has been directed at AT&T, Apple’s (AAPL) exclusive U.S. carrier. And the reaction is not euphoria.

The biggest complaint seems to be that AT&T isn’t offering the same, cheap iPhone 3G S pricing to current iPhone 3G owners as it’s offering to new iPhone customers, or other AT&T (T) subscribers eligible for “upgrades.”

Specifically, AT&T seems to be charging $399 (16 GB) and $499 (32 GB) for current iPhone 3G owners to upgrade to the iPhone 3G S, whereas new buyers (or other AT&T subscribers eligible for full subsidy) could get the phones for $199 or $299, depending on the storage capacity they want.

“Outrageous!” seems to be the vibe in San Francisco right now, where a few thousand iPhone and Mac geeks are huddled for Apple’s Worldwide Developers Conference this week.

But that’s silly. AT&T’s upgrade rules don’t single out iPhone owners — they’re the same for everyone. You’re either eligible for a subsidy — about 18 months into your 24-month contract — or you aren’t. If AT&T offered a $200 to $300 subsidy to their customers every 12 months instead of every 18 months, they’d have lower wireless margins. And lower margins are not the keys to a telecom CEO’s heart.

One argument from TechCrunch’s MG Siegler is that AT&T is shooting itself in the foot because iPhone 3G early adopters — the folks who waited for hours in line last summer to be the first to buy the phone — might just decide to wait out their contracts until next summer, when AT&T’s exclusive deal with Apple might have run out, and iPhones might be available on other carriers, such as Verizon (VZ). In other words, by not giving iPhone 3G owners the proper incentive to upgrade today — and extend their contracts into 2011 — AT&T might be pushing customers away in the long term.

But assuming a Verizon iPhone will arrive next year is a risky bet. Why? As we’ve argued before, a Verizon iPhone is unlikely before 2011. If Apple is going to skip Verizon’s CDMA 3G network — the consensus — and wait to create an iPhone for Verizon’s forthcoming LTE 4G network, it’s going to have to wait until 2011 until the service is widespread enough to be useful.

From our April post:

So what’s the schedule for Verizon’s 4G network? The telco plans to roll out 4G wireless service in two cities by the end of this year, and 25 to 30 markets by the end of 2010. That suggests it could potentially cover 100 million people by the end of 2010. But that’s the end of 2010 — who knows where it’ll be in June or July, when Apple usually rolls out new iPhones. (And that assumes a perfect rollout schedule. When’s the last time a major telecom project was finished on time?)

… So it’s most likely that Apple will wait until Verizon’s 4G network is in enough cities to be useful before it starts selling an iPhone for it. That looks like 2011.

Meanwhile, here’s a taste of the mood at WWDC from TechCrunch’s MG Siegler:

There are no shortage of AT&T iPhone customers who are pissed off at the company. Not only is their service sketchy at best in many places (I have spotty service in San Francisco, but it was much worse when I was in NYC this past week), but they do things like delay the roll out of features that the rest of the world is getting because they have other providers. And they do things like block the Sling player app from streaming over 3G on just the iPhone, while it works fine on other phones. And they rip us off with text messages (as do other carriers, though AT&T was particularly bad when moving from the original iPhone to the iPhone 3G). The list goes on.

Why this matters is that the dislike of AT&T, mixed with a not huge update to the iPhone and a higher subsidized price could be a perfect storm for users that normally would upgrade, not to. I probably will because the iPhone is integral to my work and I could use more speed and power, but the fact that I’m questioning it should say something. I didn’t question it for a second last year.

But here’s why it’s really a very questionable upgrade: Because Apple is at some point going to move the iPhone beyond the AT&T network. That move could happen as soon as next year. If you buy this iPhone 3G S now, you’ll be locked in for two more years (or have to pay the large cancellation fee). Now, AT&T is trying to negotiate with Apple to extend its exclusive deal through 2011, in which case the move to the iPhone 3G S would make some sense. But that has not happened yet, and AT&T is playing in risky waters. If I learned tomorrow that AT&T and Apple were ending their exclusive deal in 2010, there is no way I would upgrade. I’d suck it up and wait for a year.

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