That 'Cheaper' iPhone Will Cost You More

Think that new $199 iPhone is going to save you money over the older $399 model? Guess again.

AT&T is raising its minimum monthly service subscription for the new iPhone from $60 to $70 per month, according to the Associated Press.

That's an extra $240 over the lifetime of the two-year contract — more than the $200 initial savings on the handheld's retail price.

And all you "unlockers" probably won't be able to buy an iPhone directly from Apple and then jimmy it to work on another network with a cheaper plan.

That's because it looks like Apple isn't going to sell them online any more. It's not taking pre-orders on its Web site, as it has for every other device it unveils before they're ready to ship.

Instead, you're instructed to go to a brick-and-mortar Apple Store — where dollars to doughnuts you'll be forced to sign your name on a two-year AT&T service contract, just as you would in an AT&T retail store.

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On Wednesday, the British edition of CNet's News Crave gadget blog reported just that — British buyers of the iPhone 3G will be signing a service contract with O2, the authorized U.K. carrier, before walking out with their new devices.

Why is this happening? Because, as the mainstream cellular carriers discovered long ago, Americans aren't as willing to part with their money upfront as foreigners are.

A year ago, Apple thought it could buck the U.S. industry trend of charging customers little for an expensive phone, and then making up for it later with service charges and add-ons.

In Europe and Asia, customers are used to paying hundreds of dollars for a high-end phone, with the tradeoff that their monthly fees aren't as quite high as they are in America.

Apple tried the same thing with the iPhone in the U.S. The $499 initial price for the gadget was a lot, but the $60 minimum service contract, with unlimited data delivery, was quite a good deal.

Similar plans for other phones, even on AT&T, cost $80 or $90 per month.

But after a big initial splash, iPhone sales slowed and slowed. The company's sold 6 million total since June 2007, but only about 700,000 since March, a trickle that would put it well short of its goal of 10 million sold worldwide by the end of 2008.

So Apple and AT&T were forced to fall back on what Americans really want — buy now, pay later.

In a way, that $200 you save on the new iPhone is really a loan you'll be paying back to AT&T at 10 percent yearly interest.

Truth be told, the iPhone 3G is a better phone, at least judging from the specs. The added GPS chip and much faster Internet connectivity are worth the extra 40 bucks over two years.

It would have been nice, though, if the fuzzy, non-zooming camera also had been upgraded. And we'll have to wait to see whether the calling sound quality has improved.

The money-savvy foreigners matter because, according to some estimates, fully one-quarter of all iPhones sold are being operated on carrier networks other than the ones they were "locked" to.

Anecdotes posted to the Internet tell of groups of Chinese tourists buying two apiece in long lines at Apple stores in California, and the iPhone's become such a status symbol among the Russian elite that the country's new president, Dmitri Medvedev, reportedly has one.

Right now the iPhone is only authorized to be sold and operated in six countries: the United States, Britain, Ireland, Germany, France and Austria.

Sixteen other industrialized countries will get it on July 11 during the iPhone 3G rollout, with an additional 58 nations, including many in Latin America, Africa and the Middle East, to have it by the end of the year. Russia and China won't be among them.

That huge worldwide rollout will give Apple a big boost toward hitting the 10 million mark.

It had to wait for the 3G iPhone to do so, because Europeans, South Koreans and Japanese can buy other 3G phones for less in their own countries.

But the price cut squarely targets the main market — the millions of Americans who will see the new upfront cost, think "half off" and run out to buy the things all over again.