Apple will offer free iPhone 3GS with 2-year mobile contract - report - Page 3

Just one plan? There are more than that. There are two data plan tiers, three if you count the grandfathered one (though I don't), several tiers of voice plans and I think four tiers of text plans.


I really don't see that as being so outrageous. Besides, we have a lot of members that buy a new iPhone every year. To what end?


Just a tangent question, is the international market really only half of Apple's revenues? The US market is only 5% of the world, why isn't Apple doing better in the rest of the world?

That's true, but I doubt that those places have the same prices for data plans as people in the US or in other western countries are used to paying for. I constantly see on the news a story from some real poor country and you see people walking around talking on their cellphones.

Every carrier I've seen offers iPhone 3GS and iPhone 4 for free on contract.

You pay for the phone over the life of the contract and of course the iPhone 4 contracts cost more, but I don't really see why this is news. Certainly the headline "Apple will offer free iPhone 3Gs with 2-year mobile contract" is silly since it's already happening.

Never been poor, have you?

Many who have ever struggled through any significant financial problems at any point in their life become permanently conscious of costs, and while you could argue that such a person probably shouldn't even be in the market for a smartphone, the counter-argument would go that a free phone would be preferable to them, and that's true regardless of your math. There's a psychological angle to this that you cannot argue your way around. Free is better than $49, and that doesn't change even if you don't sympathize with that view.

Consider that there is probably a huge pool of potential customers out there who have no interest in the latest and the greatest iPhone and just want to tinker around with a few apps that will run just fine on the 3GS. These people are probably not huge bandwidth hogs either and I'm betting we'll see some tiered data plans that go lower than the examples you've cited. If Apple truly wants to go after a more cost-conscious buyer, they will no doubt push for Verizon and AT&T to offer lower-cost data plans.

Then you haven't seen every carrier.

Here in Japan Softbank give iPhone4 for free from the beginning. Free phone with 2 years contract is common practice here.

The only explaination for that is that the US carriers are greedy. Which they are. Here's to hoping the iPhone comes to T-Mobile and T-Mobile doesn't get bought out. Either that, or the iPhone comes to Sprint and saves them from the Verizon merger.

This is all true.

To most a "free" iPhone would be like the best thing since sliced bread. In reality most people expect to pay more for a smartphone plan and $15 a month isn't bad for a phone that can access the internet and has half a million available apps. People even had to pay small data charges to access mundane websites on their Razrs a few years back.

If Apple can offer a $0 entry iPhone and a $99 iPhone 4 in the US available on both major carriers, they could offset Androids gains by a lot here.

I can only assume that this 3GS is still going to get a hardware bump so that it can run iOS 5 and not be immediately out of date. A buyer can get a really decent (dual-core, hi-res, etc) Android phone these days for free with a contract that is the same or less than an iPhone contract.

Unless the 3GS contract is also cheap as well as the phone being free. And by cheap I'm talking £20 a month for 24 months with 500 mins and 500GB. And stick a retina display on it even if it is in the 3GS casing, eh? Otherwise people will see a free Samsung Galaxy S II for £30/m and see how sexy it is in comparison.

Or just maybe those free Japanese iPhones came with a very expensive 2 year contract? I would say that's another possible explanation right there.

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The current 3GS can run iOS 5 as is, and Apple won't give up their 70% margins, so don't expect an iPhone 4 in an iPhone 3GS package for "free."

Best case scenario (and my hope) is for an updated processor (maybe a new distinction like A3 to differentiate from iPhone 4?), front camera for facetime, a dual mode cellular radio for availability on all major US carriers, and a new case. The 3GS case design is now 3 years old and shouldn't be used again for another year. Give us a fresh design keep the plastic back sell it for $399 unlocked/free with data plan (in US) and they'll have a winner.

How many times has Abramsky been completely accurate? He's no better than Katy Huberty or Shaw Wu, if I recall correctly.

Just to be clear, Apple typically has 30% to 37% profit margins. I know not what margin you are quoting. The margin number along with the ASP are key as you can easily derive revenue and profits from knowing units shipped.


The best case scenario to me are the carriers selling a data only contract for handhelds, where we essentially buy the data with no time limits. The iPad month-to-month a la cart data deals are nice, but you are really only buying service time (month-to-month) with data caps each monthly period.

I'd like to just buy the data. I buy 500 MB, I should be able to use that in 1 day or 100 days. The cost is still the same. If I need more I buy more.

This will give OEMs a lot more freedom in the business models and essentially drive down the cost of handsets. Apple can basically just sell an iPhone line, contract-free, with models varying from $300 to $800 or more. If I need voice, the carriers can provide a VOIP service or I can go with some other VOIP service. And it should be any device, not just phones: computers, PMPs, TVs, cars, phones, game consoles, portable game devices, GPS units, etc.

Of course, no carrier really wants to do this as they think it turns them into a no growth utility.

As for an iPhone lite: take 8GB iPod touch 4th gen, give it 512 MB total RAM, and add phone parts including Qualcomm Gobi dual GSM-CDMA radio. Change the back to cheaper, but rugged plastic, change front to rugged thicker glass. Call it a day. It'll be thicker and heavier. Sell pre-paid or no-contract for $399. I'd like to have 16 GB storage, but given a choice between 512 MB RAM, 16 GB storage, IPS display, better cam, I'd always go for the RAM and trade other features.

The regular iPhone can have the A5, 8 MP BSI cam, HD Facetime cam, LTE, 32-64 GB storage, larger 3.7" to 4" IPS 960x640 screen, 802.11n, 1 GB RAM, etc.

Still, as many have mentioned, you're still paying $80/mo for two years in the USA for about $2000 in service costs. $200 is pretty small compared to that. For an extra 10% in "TCO", one is getting a device that is something like 2x better. No-brainer.

The math simply doesn't work out for "free" handsets so long as the carriers maintain a subsidized phone + multiyear contract model. I can see the AT&T 3GS selling a lot because they sell a $15/mo data plan, but still, it's not that much of a savings. It may work better if carriers don't require a data plan, but still, I don't even want to get into how voice is so expensive.

The "70% margins" refer to the fact that the iPhone cost $170 to make, according to iSuppli, and is sold for $650. It's fair to say that actual margins are no where near 70% due to licensing, research, and development costs but my point was that Apple cares too much about margins to just give away the phone.


Sounds like you're asking for something more along the lines of an iPod Touch 3G...


We pretty much agree on the basics. Not sure if Apple would put a Retina display and A4 into a cheap iPhone lite especially if they want to continue selling the iPhone 4 alongside of it. The rumor I believe is that they'll sell a 3GS(iPhone lite) and iPhone 4 alongside the new iPhone 5 so essentially 3 iPhone models available instead of just 1 or 2 (depending where you go).

Cost of wireless service in the states is terrible, but even Android buyers get screwed by it. I'm pretty sure every single Android phone with any web connectivity requires a data contract as well, so Apple isn't at a competitive disadvantage.

The other reason not to change the 3GS to A4/Retina etc is supply. Right now the 3GS doesn't compete with the iPhone-4 for scarce components - so Apple can continue to kick them out at current rates or more without impacting their other production.

I think they started off thinking this way - charge a premium for the original iPhone - and they then changed their mind. The big surprise was that they charged a premium up front AND still had high cost plans - usually it's one or the other.

Anyway, I don't think they're averse to making something much cheaper or seemingly free.



Add Australia to the list.

When the iPhone4 was released I think the 16GB was free on a A$59/mth plan. The 32GB was free on the A$79/mth plans. The weird thing was that the plans made the 32GB about $250-300 more than the 16GB, not $100 like in the US.

It still surprises me when people don't factor in an expensive contract... though I know many people really do ignore that.


I agree, much more likely for them to take what they know from the old iPhone and the iPod Touch to design a cheaper option.


If you add a camera and change the radio you'll need to redesign the internals anyway right? May as well redesign. Some people have even said change the chip to an A4.

If it's changed a lot then it's just a matter of what they name it.

Abramsky (four-star rating) is a little better than the average professional analyst and certainly better than Huberty and Shaw. Collectively the pros are far less accurate than the amateur finance bloggers.

http://tech.fortune.cnn.com/2011/04/...iss-by-a-mile/

5-star analysts Andy Hargreaves and Brian Marshall have been the most consistently accurate professional analysts for a while.

http://finance.yahoo.com/q/sa?s=AAPL+Star+Analysts

Note that the Starmine rating is basically grading on a curve. If the amateurs were included, no professional analyst would be star-rated (i.e., four or five stars).

The 3GS will be history by the end of summer. The upcoming 4S is really the iPhone Nano -
Cheaper specs: Smaller 4gig or 8gig internal hard drive (iCloud friendly) NO Facetime camera (rear camera only - 5 megapixel) Comes in a few colors for the kids - Dark Blue - Dark Red - Dark Green - Graphite Grey . . . SLIGHTLY shorter than current iPhone with EXACTLY the same screen size - A la carte plans available - prepaid, etc. Data plans optional - Unsubsidized prices: $199 for the 4gig - $299 for the 8gig - This is the Honda of iPhones - If you want the Cadillac grab an iPhone 5 with bigger drive, facetime camera and 8 megapixel rear camera - Two great options!

As an added enticement put a version of Photobooth right on this new iPhone Nano (available initially on the new nano ONLY) To get the kids really excited!

Pro users will still step up to the black or white iPhone 5 . . .

My guess is that there are several factors. The first is that Apple is an American company, so perhaps Americans are more inclined to purchase from a company based in their home country, like Californians drinking California wine, not French.

The second is the fact that Americans have a higher percentage of disposable income than probably any other country in the world. Even the other G-8 nations have less per capita disposable income by percentage, largely due to higher taxes.

My guess is that while the USA makes up 50% of Apple's revenue, the top 7-8 export markets make up 40% and the rest of the world rounds out the last 10%.

Remember that Apple decides how much to allocate to each market, just as they can decide how much to allocate to their domestic channel partners (Amazon, Best Buy, Radio Shack, Walmart, whoever). Often, Apple has supply constraints and deliberately limits export markets by staggering the release of a new product.

I constantly see anecdotes here about someone in a foreign country who places an iPhone order that goes weeks or months unfulfilled so it's likely that if supplies weren't constrained, there might be a slightly different mix of where revenue is coming from. We're seeing some change though in recent years, particularly in Mac sales, where the export market has grown substantially.

I hope they call it the iPhone FREE GS

Apple should definitely redesign the internals of the 3GS if they intend to sell it another year. I'm not saying juice it up with all the latest tech but they could design the phone to be cheaper to assemble and mass produce. When Apple unveiled the Verizon iPhone 4 iSuppli found it to be nearly $20 cheaper than the original iPhone 4 because Apple used different materials and designed easier to assemble internals.

But if they were to redesign the entire device they may as well build an "iPhone lite" from scratch, which for all we know they may be doing...


I don't agree with all your ideas, but I'd like to see an iPhone Nano in the future with a smaller form factor than the standard iPhones.

Maybe in the near future we'll see iPhones with 3 inch, 3.5 inch, and 4 inch screens all sold side by side.

If Apple does this then they will absolutely dominate the smartphone market even moreso than before..........which is a good thing because i'm sick of the few customers left who buy androids and blackberries and wanna return them because they find the OS unintuitive and confusing.

It's complicated, the short answer is no, the long answer is as follows.

Apple is actually doing very well outside the US, but the last quarter was exceptional - lets look at last quarters data
http://files.shareholder.com/downloa...Q_04.21.11.pdf
(Page 20 is the relevant table)

Comparing Non_US to US we have

Revenues - 12.15BN to 9.323BN so 130% of US
Oper. Incm - 5.285BN to 3.755BN so 140% of US

That gives us a clue to part of why US revenues are so high, and it's the same reason that US margins are comparatively low. iTunes. Outside the US iTunes stores are far more limited, especially in the area of video. iTunes is a big revenue business with razor thin margins, so it both inflates US revenues and reduces US margins. We can avoid that messing up the comparison by focusing on Operating Income instead of Revenues.

What else can we deduce? Lets look at the previous years quarter, Q2-2010

Revenues - 6.823BN to 4.993BN so 137% of US
Oper Incm - 2.994BN to 1.674BN so 180% of US

in fact in Q2-2010 the profits were slightly higher in Europe that the Americas. So the real question was, why was Apple doing so poorly in the US?

What changed? Verizon iPhone mostly, in fact looking at 2011Q1 we see the same pattern with US & EU income roughly equal, so the Verizon iPhone was worth 1Billion in operating income last quarter.

Hope that answers your question.

The iPhone 4 has been available for 0 under a two-year contract in Ireland for the past few months.

It's about 4200 JPY/month or about $52, unlimited data transfer.

my iphone 4 went for a swim so i got a 49$ 3gs. i dont care what anyone says, it makes call and texts faster than the 4. the 4 has a better screen but for me it sucked as a phone. i would love the 3gs with better screen and faster proc but old design. for what its worth the 3gs is pretty good phone and free doesn't hurt. all the smart phones are 100/month to use , thats just the way it is.

So you want an iPhone 4 (the "slower" phone, you've said)... in a 3GS case. So the performance will still "suck", it will just "look right".

That's problematic, you see.


Only because you act like this.

100 what a month? The minimum plan from AT&T costs US$60 a month, I think $40/mo voice, $15/mo data and $5 for taxes and "fees". With those options and the $5/mo text plan, I've found it to be pretty comfortable.

Reason 3GS seems faster is because it has less pixels to push around. Add an RD display and it'll be slow as a dog. With the curved glass patents maybe the 5 will have a curved glass back to mimic the appeal of the original iPhones.

It's true that all smartphones on contracts with the big 2 carriers are gonna be $100/month for decent service. As I said above, as bad as the service prices are its the same for Apple and Android so Apples not at a disadvantage on the carriers. If they offer a free iPhone with 2 year contract they'll have something to fight the plethora of free Androids being thrown around.

Add in highest data plan (for us power users ) and unlimited texting and you'll be at around $100/mo after taxes

Those figures are about right, as long as you have the traffic to justify it. I don't buy high data because I'm in a WiFi zone for most of my uses. I only went over my limit twice. The perception seems to be that people have to spend a lot per month to have a smart phone, and I'm just pointing out that it's not necessarily so. But maybe the point was that all smart phones are going to cost roughly the same. Even so, I think it's well worth the little bit extra to buy the better phone, when the higher end phone is only the cost of a couple month's service more. If you're going to be paying the same for service either way, you may as well enjoy it with a nicer device.

Desperate times calls for desperate measures.

Yeah, for most people the $15 plan is enough, and the $$ can fit into most people's budgets too. 3 less Bic Macs a month and you can afford a smartphone

And about two less Big macs a month for two years, and gdog can afford to get an iPhone 4 instead of a 3GS.