There is already a lot of noise over this all around the ‘net. Owners of the iPhone 3G saying they’re getting ripped off, or not being treated like “loyal customers,” because they’re not being offered the fully subsidized price for the new iPhone 3G S. In […]


There is already a lot of noise over this all around the ‘net. Owners of the iPhone 3G saying they’re getting ripped off, or not being treated like “loyal customers,” because they’re not being offered the fully subsidized price for the new iPhone 3G S. In reality the AT&T upgrade pricing is pretty much like all phone subsidies in the U.S. (and, for that matter, many other parts of the world). Actually, it’s a little better.

The unsubsidized price of the iPhone 3G and S models is $599/$699. The ones complaining most are iPhone 3G buyers who bought it for $199 shortly after its launch last July. Even then, they’ve only had the phone for 11 months. They have less than one year completed on a two-year contract. At best, they’ve only “earned back” half the $400 subsidy, yet they somehow feel entitled to it all, as if AT&T should just swallow the remaining $200.

For all the complaints about being ripped off, the truth is AT&T is actually being pretty good about this. When 3G owners have a year under their belt, AT&T is willing to say, “You owe us another year of subsidy ($200), but if you ink a new 2-year contract for the 3G S we’ll provide you the second year’s subsidy ($200).” That’s why 3G owners are being offered the new models at $399/$499 when they hit their 1-year anniversary.

Why do I call the above “pretty good”? Because typically you have to go 18 months or more before a carrier is willing to provide a subsidy for a new purchase. That AT&T is willing to do so at 12 months is about as “generous” as a U.S. carrier gets. Yes, it’s only half the subsidy, but you only completed half the time on your current phone.

I’m not asking you to agree with the subsidized sales model, or be happy about it. Nor am I trying to convince you it’s good — none of that is the point. The point is it’s the model we have, and a 3G owner is not paying extra or getting ripped off because of it. Do the math. If you bought the 3G at $199, and one year later bought a new 3G S at $399, at the end of that new 2-year contract you’d have paid $600 for both phones, and received $600 in subsidies. That amounts to $200 in subsidy for each year, which is exactly what AT&T offered you in the first place (and what you agreed to).

What’s strange about all this is that, even though this upgrade maze exists with all carriers, only Apple makes a phone so compelling people want to get a new one after only a year, so the upgrade policy is getting the spotlight on it and grabbing all this attention. Maybe the outcry will compel some changes in it, though it’d likely require all the carriers to come on board for it to work.

Meanwhile, this is generally the way it is for any heavily subsidized phone on any carrier. If someone buying a Palm Pre or BlackBerry Storm with full subsidy today thinks they can get that same full subsidy on a newer model before putting most of their time in, they’re kidding themselves.

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  1. the only issue I have with this is that I didn’t get it subsidized last year, I paid full price, and they are still wanting to hit me with that again, instead of even a slight upgrade price.

  2. I have to agree. I paid full price as well, and it’s just not fair.

  3. Well actually AT&T is ripping people off if you ask me. I live in Romania and i have and Orange contract. If you buy a phone with a 2 year contract and get that phone at a subsidized price, you are allowed to buy another subsidized phone after 12 months have passed without having to pay any extra money for it except the subsidized price for the new phone.

  4. Frozen, but are your subsidies the exact same as AT&Ts? i.e., is Orange subsidizing approx 2/3 the purchase price? Or is it possible they make more on the back end with higher data/rate fees? It’s a little difficult to compare directly especially with exchange rates etc.

  5. The only people that are getting ripped off is the ones that purchased the 3G at full price and still are under the 2 year agreement. Those details will probably be worked out store by store.

    The people who purchased the 3G at the “subsidized” price are getting a fair trade at the 12 month mark. They think the iPhone is different than any other new phone model any manufacturer comes out with. It’s not, your bound to the same exact contract rules as someone buying any phone from AT&T or nearly any of the major wireless carriers (Sprint, Verizon, T-mobile) ALL have restrictions on how early you can upgrade if you did not pay full price for a phone.

    The people that can’t afford the iPhone in the first place are the first to kick and scream because likely they won’t get mom and dad to pay for the new phone and they will not be the “cool kid” anymore. Welcome to reality boys and girls.

    People expecting others to bail them out when they want something they can’t afford… oh wait that pretty much describes our economy. Cars, homes, electronics (max’d CC’s) buying things we cannot afford and then crying about it because we we never could afford what was purchased. Start a petition to Obama.. maybe he will bail you out too!

  6. Weldon Dodd Friday, June 12, 2009

    @Layman & @kijubi – how is that you paid full price and are still not eligible for a subsidy?

    And one point of clarification to the article. AT&T makes you eligible for a new subsidy at 20 months into a 24 month contract, so you can renew before the contract is up. This is the case at least on my family plan with 5 lines.

  7. Tom Reestman Friday, June 12, 2009

    Lyman, kijubi,

    There are always exceptions, and I don’t know what they may be in your case. As a start, did you pay full price because you were not eligible for a subsidy then? Maybe you still aren’t for some reason.

    What I outlined in the article is what I’ve seen expressed, and as I understand it. Lots of people — even those complaining — have confirmed this. But there will always be exceptions because other conditions can apply (passing a credit check, being a customer in “good standing”, etc.).

  8. Okay they policy from AT&T was always one year then you were eligible for an upgrade…I purchased my 3g on release day so after July 11 I should be eligible correct? WRONG AT&T has changed it’s policy to show that you are eligile somewhere in between 18 – 22 months so that they can charge us more for the new 3gS….The 18 – 22 month was quoted to me by multiple AT&T associates and they stated “it is up to us when you are eligible” not any other reason whether you paid full price or not! SO YES THEY ARE RIPPING PEOPLE OFF. I would be 100% okay with the 1 year eligibility policy but the policy of “we choose when you can” is just wrong they use that to flex dates around releases to get people to pay full price and still lock them into a full 2 year contract.

  9. Weldon Dodd Friday, June 12, 2009

    Oh, and a loud “AMEN” to the general point of the article. If you got an iPhone for $199 last year, what are you complaining about?

  10. Actually, it’s not a year. At least not for me. It’s 18 months. Or perhaps it’s based on when my wife got her iPhone added to the plan.

    Lyman, and kijubi: how did you pay full price? Did you actually pay $500 or $600 instead of the $199 or $299 subsidized price?

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