The iPhone Gets Faster and Cheaper

The iPhone will soon be $200 cheaper and come with satellite navigation and faster Internet access, but it will be pricier to own because monthly service charges are rising.
Washington Post Staff Writer
Tuesday, June 10, 2008; Page D01

Apple yesterday introduced a faster and cheaper version of the iPhone that may make it less of a conversation piece for techno-enthusiasts and more accessible for the mainstream.

The much-anticipated, and speculated about, new iPhone will run on a high-speed AT&T network using 3G technology, which provides Internet speeds that are twice as fast as are available on the phone's current version, Apple chief executive Steve Jobs said.

But the real selling point will be the phone's new price, $199 with a two-year contract with AT&T, half the price of the existing iPhone. For double the memory, 16 gigabytes, the phone will be sold for $299.

"There is a very significant audience of consumers who have seen promise of what the iPhone offers but found the price too stiff," said Charles Golvin, an analyst with Forrester Research.

Some analysts said the lower price should help boost iPhone sales, even as economic uncertainty weighs on consumers who are forgoing summer vacation plans and finding other ways to tighten household budgets. Slower consumer spending has already weighed on cellphone sales, which declined by 22 percent, to $2.7 billion, in the first quarter, according to NPD Group, a marketing research firm.

Investors, however, reacted negatively to the announced lower prices, sending Apple's shares $4.03 lower, to $181.61.

AT&T also announced that the lower iPhone prices will directly hurt its earnings by 10 cents to 12 cents per share over the next two years. The carrier will subsidize the costs of the new phones. It also will offer unlimited data plans using the 3G network technology for $30 a month, in addition to voice plans starting at $39.99 a month. Unlimited 3G data plans for business users will be available for $45 a month, in addition to a voice plan. The existing iPhones are not equipped to harness 3G, the third-generation technology standard for cellphone data networks.

Analysts said the iPhone appeals to those technology consumers who already use their cellphones and iPods for music and other digital entertainment and have been waiting for a better and cheaper version of the phone to be released. The new-generation phone will be thinner than the previous model and include location-based services via the Global Positioning System. It will also have software that automatically updates e-mail, calendars and contacts and will have a longer battery life.

"This straddles that real estate between luxury and need-to-have for a certain segment of the population; they'll have a credit card in one hand and a pink slip in the other," said John Jackson, an analyst at Yankee Group, a research firm.

Shahid Khan, an analyst at IBB Consulting Group, said cellphone users typically replace their phones every one to two years and may consider the iPhone at its lower prices when they are ready to buy. But it will be difficult, he said, for Apple to steal customers of Research in Motion's BlackBerry, a popular device for phone and e-mail services for business users. In the past year, RIM responded to the iPhone by souping up its BlackBerry phones to include better Internet features.

Apple said the iPhone will begin selling July 11 in Apple retail stores and AT&T stores in the United States and in 70 other countries by the end of the year. Jobs said in his speech that the company sold out of the 6 million iPhones it manufactured last year and will produce 10 million units of the new version of the iPhone for sale this year.

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