Last year, Apple’s first iPhone shook up the mobile industry with its unique hardware and software design. Its popularity has led to a sea of lookalikes. This year, Apple’s second iPhone is already changing the business again — even before it goes on sale.
How’s that? At $199, Apple’s least expensive 3G iPhone is $200 cheaper — 50% less — than the last version. Which means that rival carriers selling rival smartphones are going to have to charge a lot less to get much attention.
Like Sprint Nextel (S), whose new Samsung Instinct is obviously apeing Apple’s iPhone — and isn’t doing a great job at it, according to Walt Mossberg. Yesterday, Sprint announced that the Instinct would sell for a paltry $129 (after an annoying mail-in rebate) when it goes on sale this Friday. We think that if the 3G iPhone had been announced at the old $399 price, Sprint easily could have introduced the Instinct at $199, $299, or even $399. But instead, it’s going to be $70 cheaper than the 3G iPhone, and $270 cheaper than the old iPhone.
Likewise, we think whichever carrier ends up with Garmin’s touchscreen Nüvifone later this year will have a tough time selling it for a supposed $499. And we doubt Verizon Wireless will be able to charge much more than $199 for the touchscreen BlackBerry Thunder it will sell later this year.
In the short run, that means lower profits for carriers, which will have to subsidise smartphones more. AT&T already warned Wall Street that subsidizing the new iPhone would cut into its earnings and margins. (And potentially lower profits for manufacturers, too, if they have to cut their wholesale prices on high-profit smartphones.)
But in the long run, this isn’t bad news for carriers. To get an iPhone at $199 — or an Instinct at $129 — you need to sign a 2-year contract, agreeing to pay at least $39 a month on mobile phone service and $30 a month on mobile Web access.
That a $69 mininum monthly bill, which is $20 more a month (40%) than the average U.S. wireless subscriber spends on service, or $480 over two years. And with more subscribers paying for unlimited 3G Web access, that’s a bigger market to sell other data services to — like a subscription to Loopt, the mobile social network — or eventually to convert into mobile Web ad revenue.
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