Why iPhone Service Prices Probably Won't Budge

There's no shortage of buzz over predictions that iPhone service costs are about to drop, but I wish to respectfully disagree with that expectation. The predicted price drop is supposed to be the result of a trickle-down effect from the heating up of competition for cellular customers. Fortune.com quotes Kaufman Bros' analyst Shaw Wu as saying cheaper all-you-can-eat pricing from Sprint and T-Mobile could convince AT&T reduce its up-through-the-sky pricing for iPhone users.

From Wu's lips to God’s ears, but I am not particularly hopeful. Apple, which plays a key role in determining AT&T’s pricing for iPhones and service, has never been known to reduce prices except as a normal part of the technology cycle.

Steve Jobs' claim that the iPhone 3G offered "twice the speed for half the price" was so transparently bogus that it took only a few minutes for even the most starry-eyed Mac fan to realize the total cost of owning an iPhone increased significantly as part of the new, "lower" pricing.

As long as the iPhone is considered the preeminent handset, Apple and AT&T will do very little in the way of price reductions, especially on the monthly service. Wu is correct in noting that service pricing is a reason some people don't purchase an iPhone (and why I haven't upgraded my personal handset), but the large price reduction necessary to offset that simply isn't in Apple’s bag o' tricks.

I'd be happy if 3G service just wasn't more expensive than what I pay for the original iPhone's EDGE data service. Moving from my old iPhone to the 3G model would add $30 or even $40-a-month to my bill. Plus the cost of the new handset.
Sprint and T-Mobile are cutting prices because they don't have interesting handsets to sell. And price-sensitive consumers will probably find that acceptable.

Yes, the price of the iPhone and AT&T's service for it will eventually come down, but I don't expect it to happen quickly or in a major way. Though, I'd love to be wrong on this one--and get to upgrade my iPhone at a price I'd be willing to pay.

David Coursey wishes iPhone costs were about to plummet, but doubts it very much. E-mail your feedback to david@coursey.com.

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