How the iPhone Service Plan Measures Up

A simplified rate structure encourages consumer confidence, and overall pricing is comparable to competing voice-and-data packages.

Assuming that shoppers can get over the starting price of $499--and to judge from the lines of prospective buyers outside Apple stores, plenty of people already have--another aspect of owing an iPhone may give the budget-minded consumer pause: AT&T's service charges. With service priced at $59.99 a month, the minimum cost of the mandatory two-year service contract with AT&T will be $1439.76 over the life of the contract.

Spending nearly $2000 for a mobile phone and two years of service might seem extravagant, but let's compare the numbers to those associated with other offerings. A person who signs on for a comparable voice-and-data package from T-Mobile will pay the same $59.99 monthly rate charged that an iPhone user incurs, and Verizon customers who select the BlackBerry Voice and Data Choice Bundle will pay substantially more: $79.99 per month, which works out to more than $1900 over two years, without even factoring in the cost of the BlackBerry. AT&T customers who don't have an iPhone can get a voice and data plan for $49.98 a month, but that deal doesn't include unlimited access, which the iPhone's service package does offer.

The bottom line? The cost of service plans for the iPhone are competitive with what's available for other mobile devices. And the way Apple and AT&T have laid out the plans for consumers, combining voice and data, should take a lot of the frustrating guesswork out of choosing a plan.

According to Jill Aldort, an analyst with Yankee Group, the most compelling aspect of the AT&T/iPhone monthly service arrangement is that it combines voice and data in a single-priced package. "This simplifies the buying experience and takes the mystery out of mobile data pricing," Aldort says.

Another interesting feature of the iPhone service plans is their unlimited e-mail and Web offerings: Customers simply decide how many minutes they need and how many SMS text messages they figure to send. Analysts say that this move will broaden the iPhone's appeal beyond the traditional market for smart phones.

"The value proposition of most smart phones is that they've mostly appealed to business professionals," explains Kevin Burden, senior manager for mobile devices at consumer research group Telephia. Those users turn to smart phones for things like e-mail and running back-end applications (for example, customer-relationship management software). As a result, Burden says, "Most consumers don't get too jazzed by smartphones; they get confused by them."

Apple is attempting to counter this confusion by flipping conventional phone-marketing wisdom on its head. Burden sees Apple's ad campaign--which stresses the iPhone's multimedia applications and Internet browsing before adding that, oh yeah, it's also good for voice conversations--as testing a new approach to an audience that few smart-phone makers or mobile-service carriers have courted. "No one has ever gone after the consumer segment the way Apple is going after the consumer segment," he says.

On top of its ad campaign, Apple is using its reputation to set itself apart from other players in the mobile phone market. "Apple is really positioning the iPhone around the entire Apple experience--being able to activate the service through iTunes and sync personal data to the phone through iTunes," the Yankee Group's Aldort says.

That promised Apple experience is the rationale behind the $499 and $599 price tags on the 4GB and 8GB model phones, Burden says. "Apple's mantra--they're never first to market. They tend to take something that's already in the market and they just make it better," he says. As for the iPhone, "They better do it that way because that's the only way to justify that price tag. You're paying for superior applications that were once difficult to use."

Some of Apple's historic ability to streamline and simplify formerly complicated products may have rubbed off on AT&T, given the straightforward nature of the iPhone service plan's pricing. Anyone who has studied the menu of data plans available via American mobile service carriers knows how confusing the choices between different packages can be. AT&T's simplified approach will expose more consumers to the mobile data market in general, Aldort says, which in turn will help build a new customer base for smartphones.

Lisa Schmeiser is a writer whose work has appeared in Macworld and Investors Business Daily.