Apple CEO Steve Jobs gave the Apple faithful and the business community what they wanted Monday: a faster and much cheaper iPhone.
The new models will feature GPS satellite-tracking chips, third-generation (3G) cellular Internet access, better audio, longer battery life, metal buttons and a regular flush headphone jack.
The 8-gigabyte model will retail for $199 in the U.S., its 16-gigabyte sister for $299 — and the latter variation will also come in white.
It hits stores on July 11 in the U.S. and 21 other countries, including Canada, Mexico, Australia, New Zealand, Japan, Hong Kong and most of western Europe.
Third-generation Internet connectivity is crucial to the iPhone's success in Europe, Japan and Korea, where cheaper phones have had the feature for years.
It'll be like "going from dial-up to broadband" for iPhone users, Piper Jaffray analyst Gene Munster told USA Today in an article published Monday before Jobs' speech.
Current iPhone owners who buy a new model and sign up for a new AT&T contract won't have to pay any penalties to get out of their current contract, AT&T spokesman Michael Coe told the Associated Press.
Anyone who bought an iPhone in an AT&T store after May 26 can return it before Aug. 1 for full credit against a new one, less a 10 percent restocking fee, Coe added.
Admission of defeat
The price cut was in a way an admission of defeat for Apple.
It had tried to buck the U.S. cellular-market model of discounted handsets heavily subsidized by the carriers, which make back the money on service charges and add-ons.
It was a "tacit acknowledgement ... that its previous sales strategy was not sustainable," the Financial Times said Friday in a story breaking the news of the price cut.
For the past year, Apple charged users full price for the iPhone, initially $499, and then $399 for a higher-capacity unit.
The trade-off was that AT&T offered relatively inexpensive voice and data plans to go with it.
And indeed, Jobs neglected to mention one little thing during his speech Monday — AT&T's American iPhone plans would be going up, with the base voice and unlimited data monthly plans starting at $70, up from $60.
As the Associated Press pointed out, over the course of a two-year contract, that increase wipes out the savings from the handheld's retail price cut.
It wasn't clear whether other carriers around the world would raise their own monthly fees to compensate as well.
Apple and AT&T are both eating part of the loss from the slashed retail price, however.
Apple gave up its givebacks on the carriers' monthly subscription fees, though it's still charging them the same wholesale cost for each unit.
AT&T warned investors it would take an earnings hit from the lower retail price, which it's directly subsidizing.
Today six countries, tomorrow the world
Apple aims to sell 10 million iPhones worldwide by the end of 2008. It's sold only about 6 million since the device first went on sale in the U.S. nearly a year ago, and only 700,000 since March, though part of that was doubtless due to the flushing out of inventory as channels were cleared for the new model.
That goal will be aided somewhat by a rapid overseas rollout.
Right now, the iPhone is authorized to be sold and operated in only six countries: the U.S., Britain, Ireland, France, Germany and Austria. Most of the rest of the industrialized world will get it July 11.
By the end of the year, the iPhone 3G will be available in 70 countries, including almost all of Latin America, South Africa, Kenya, several West African countries, Egypt, Turkey, India and the Philippines.
Retooling the carrier lock
Noticeably absent on the big iPhone map of the world behind Jobs during his announcement were two of the iPhone's biggest "gray markets" — China and Russia.
Both countries are full of iPhones bought elsewhere and "jailbroken" to work on networks other than the ones they were hard-wired for — a fact Jobs jokingly alluded to in his presentation.
On Wednesday, the British edition of CNet's News Crave gadget blog reported that British buyers of the iPhone 3G would need to sign a service contract with O2, the authorized U.K. carrier.
Until now, purchasing the units and service contracts were separate transactions, a model common in Europe and a bonanza for unlockers who shipped the unused units to other countries.
There was no word on whether Apple would require signing up for AT&T contracts at its stores, but there appears to be at least one big change.
The online Apple Store is not taking pre-orders for the iPhone 3G, instead directing customers to go to the brick-and-mortar Apple Stores or AT&T retail stores.
Apple almost always offers, and gets, lots of pre-orders for gadgets unveiled before they hit the distribution channels,
Jobs, looking noticeably thinner than usual, bounded onto the stage of the Moscone Center in San Francisco just after 10 a.m. PDT Monday morning.
The online Apple Store had gone "dark" worldwide a few hours earlier, with variations on "We'll be back soon" greeting potential customers.
That wasn't news to anyone wanting an iPhone — Apple stores, both online and offline, ran out of the old-model devices more than six weeks ago.
Jobs began his keynote address at the start of the tech firm's Worldwide Developers Conference by listing the number of companies that had tried out the iPhone's enterprise software.
Apple hopes to take a big chunk of the giant, lucrative corporate smartphone market with the iPhone.
Right now, Research in Motion's BlackBerry devices dominate that market the way Apple's iPods dominate the MP3 player market — there simply isn't any worthy competition now that Palm's Treo has been reduced to individual sales rather than mass corporate purchases.
So Jobs introduced a long, somewhat dull segment detailing how the iPhone 3G will work splendidly with Microsoft Corp.'s Exchange software, which BlackBerry is renowned for handling well, as well as Cisco's router technology.
According to Jobs, 35 percent of Fortune 500 companies had tested the software, as had the U.S. Army. He didn't indicate, however, that any of those organizations had volunteered to replace their BlackBerries with iPhones.
On a more personal level, the iPhone can also sync up with Google's Gmail, AOL e-mail and Yahoo Mail.
After a jargon-heavy presentation detailing the technical achievements of Apple's software development kit for the iPhone, a brand new batch of third-party applications were debuted.
Several games, including Sega's "Super Monkey Ball," that used the iPhone's own motion sensor to substitute for a four-way joystick, were demonstrated.
"These graphics look unbelievable compared to anything we've seen on a cellphone before," commented Engadget's Ryan Block on his Web site's live event blog. "Seriously, these are [Nintendo] DS-quality graphics, easily."
Other applications were shown off — one that keeps track of your iPhone-toting friends in your general vicinity, another that updates baseball scores, a third specifically to bid and post on eBay, a musical-instrument emulator, a medical guide and even a mobile blogging application.
Existing third-party applications have to be downloaded via a PC or Mac from the Apple Web site, and all are free, but the new AppStore connects directly to iPhones wirelessly — and most of the applications will carry a purchase price.
A decade after "push" software briefly became the Next Big Internet Thing, and the next Internet bust, Jobs introduced push software updates, e-mail and calendar and contacts information — all tied into an overhaul of Apple's .Mac online service, to be retitled "MobileMe."
Computer can access the service at the easy-to-remember www.me.com, which Apple evidently bought from a smaller company. A visit to that site during Jobs' address brought up a note that the social-networking startup previously there had moved to a new URL.
MobileMe keeps each user's information on a central server, to be accessed via Mac, PC or iPhone — and any changes made will instantly be pushed out to all the user's devices.
Like .Mac, MobileMe costs $99 per year. Existing .Mac users will be upgraded for free and their current 10 gigabytes of storage space will be doubled to 20.
All the software will be standard on the new iPhones, a free download for existing iPhone units and a $9.95 upgrade for existing iPod Touches.
The Associated Press contributed to this report.