Following up: the new iPhone is even more expensive

Got plenty of opinionated comments on my prior post about pricing of the new iPhone 3G. Thanks for all the comments. Just a couple of quick responses from me

First, my main point is about how Apple and AT&T’s shift from higher up-front cost to higher per-month fees radically altered the sales projections. Thought experiment: If Steve Jobs got up on stage last week and introduced the iPhone 3G with all the features just as he actually did but the price stayed exactly the same, would anyone be predicting tens of millions of iPhones sold this year? No way. The biggest news out of the speech was the price cut (See this great post by my old boss, Eric Savitz, summarizing analysts’ reactions). The basis of the swelling sales estimates is the “price cut” from $399 to $199. The almost $400 up-front cost turned out to be too much of a psychological barrier for consumers, but it was just that: psychological! People didn’t realize that, considering the two-year total cost of ownership, they were getting a great deal.

Second, I didn’t mean to say that the new or old iPhones aren’t worth the cost or that added features weren’t “worth” more. I was commenting on how shoppers can be manipulated by pricing models.

Third, I — and almost everyone else — have actually underestimated the price increase on the iPhone 3G. Take this Gizmodo article, for example. That’s because AT&T calculates a couple of bogusly-labeled monthly surcharges as a percentage of your monthly plan rate. These are the “government fees” that you’re somehow supposed to think are taxes or something ordered by Uncle Sam when in fact they’re just sneaky ways for AT&T (and every other cell phone operator, to be fair) to raise your bill. Plus there actually is tax charged on your cell phone bill in most places. So the added $10 or $15 a month that I mentioned in my previous post is probably more like $12 to $18 a month or more, depending on how your bill works out.

If you use the $18 a month extra, then you’re paying $2,071 over two years, up from $1,839. Discounted at 5%, you’re paying about $1,969 versus $1,616. Ouch.