How Much is Apple Getting from AT&T for Each iPhone 3G?

Now that AT&T is no longer delivering revenue sharing, I wonder how much they're giving Apple upfront for every iPhone activated?

A clue may be in the price Vodafone is selling a contract-free iPhone 3G in Italy. They are selling the 8 gb for 449 euros, which is about $691, and the 16 gb for 569 euros, which is about $876 (according to Google's rate conversion for today).

If we assume those prices are what Apple would sell the iPhone in the US, then AT&T is reimbursing Apple $492 for the 8 gb and $577 for the 16 gb.

If we look back to revenue sharing and say Apple was getting $15 a month per contract, that comes out to $360 for each iPhone over a span of two years. Could AT&T have upped the ante in order to get the more draconian activation rules in place?

If I were AT&T, I would definitely up the ante, especially knowing just how powerful the new enterprise features in the iPhone are. They have to be salivating at the thought of getting contracts from the corporate world--the easiest big money out there. Plus, they are making an extra $10 per month on the $30 data plans. If Verizon didn't regret passing on the iPhone the first time they saw it, they have now with the iPhone 3G.

I did not think Apple would allow the kind of shitty customer experience that comes with phone activation for the iPhone. But I think all that upfront cash changed their mind.

Will Apple Allow AT&T to Discount the iPhone?

Arik Hesseldahl from BusinessWeek in the article , "Why AT&T May Deep-Discount the iPhone."

With less than two months to go before Steve Jobs takes the stage at Apple's Worldwide Developers Conference, where he's expected to unveil a new iPhone, it appears that AT&T may not be convinced that new bells and whistles will be enough to get droves of new customers to switch from other wireless carriers. So after a year of charting a new wireless business model by selling the vaunted iPhone at premium prices, the nation's biggest phone company may resort to the oldest trick in the cellular book: big discounts.

Gruber from Daring Fireball seems to disagree with Hesseldahl's logic.

The problem is this: why would Apple allow AT&T to sell iPhones for half the price of what iPhones cost in Apple’s own stores (including this one)?

Subsidies only work when they’re sold in conjunction with two-year contracts. It’s possible that Apple could do the same, and sell subsidized AT&T-contract iPhones in Apple Stores, but that would mean abandoning the innovative (and very appealing, very successful) model of activating a new iPhone at home, via iTunes, rather than sitting around in a store for 45 minutes making uncomfortable small talk with a salesman while waiting for your credit check and your old phone number to transfer over.

You’d think this might be worth a mention.

From a financial aspect, Apple allowing deep discounting makes a lot of sense. The more wireless-plan contracts that AT&T can pick up, the more profit there is for Apple via revenue sharing. This is on top of the profit Apple makes on the sale of the hardware alone. A good percentage of the iPhones that Apple sells in its stores are bulked shipped around the world to places like Russia, which supposedly has amassed a market of 500,000 unlocked iPhones. These unlocked phones make Apple less money because they lost out on revenue sharing.

But the real problem with the deep discounting process is the customer experience, which is extremely important to Apple. To get a discounted phone, usually you have to sit with a rep in the store or on the phone as they take your credit card and have you sign the contracts, etc. Once the wireless plan is activated, then they charge you the discounted price for the phone and you walk out of the store with your new phone. I agree with Gruber: there's not a snowball's chance in hell Apple will allow this in Apple stores. And there's a bunch of reasons why Apple wants you take your iPhone home and activate it by hooking it up to iTunes. But, is it there a way Apple could maintain its retail customer service experience and still allow the discount?

Here's an idea: there are two seperate approaches for the $200 discount, one for AT&T stores and one for Apple stores.

In AT&T stores, a customer must suffer the pain of sitting in the store through the finance check and contract signing. At the end, customers can walk out of the store able to make phone calls with their $200 iPhone. But what about iTunes? Apple surely wants those users to connect to iTunes and buying all that media right? That's where the iPhone updates and the SDK comes in. People still have to connect it to iTunes if they want all that cool shit that's going to come out soon. Not to mention the iPhone is the "world's best iPod." Of course people are going to hook it to iTunes.

But with the Apple retail store shopping experience, nothing changes. You're still getting the same minimalist experience. You have to buy the iPhone at full price, and you can still ship it to Mother Russia or the Congo or wherever to be unlocked. Or, you can take it home, activate it, and AT&T cuts you a $200 credit to your account or a rebate check. I think the typical Apple shopper will forgo the instant discount for the convenience and coolness of shopping in the Apple store. The typical AT&T store shopper? Probably not.

iPhone Activation Resolution

My iPhone is activated! However, no thanks to AT&T (or very little). It was mostly my own research on the internet that got me the last little push to get activated.

In my previous post, we left off with me getting a new, "modernized" AT&T Wireless plan and then connecting once again to iTunes only to get the "AT&T needs more time" message. I was also told by a customer service rep it would be an hour after I connected to iTunes until my activation. However, several hours later, I was still waiting.

Well, I went online and somehow drifted to the Apple Support forums. A post there advised people with grandfathered in AT&T Wireless plans to get a new SIM card along with their new plan (which I had already done per my initial AT&T customer service rep--turns out she was right, only she didn't tell me what to do after, even though I specifically asked). But, if you read my last post, you'll know that a following customer service rep said the SIM card was pointless. However, the post on the Apple forum said to put the new SIM card into the iPhone. I did this, turned my iPhone off and on, then connected to iTunes. It worked! All that waiting for nothing.

It is clear now that no one from AT&T customer service knew the entire process for me to get my iPhone activated. There were bits and pieces correct, but I had to do go online to put all the pieces together myself. Thank god for the Internet.

My iPhone Activation Has Been a Mess

So far it has been over 24 hours since I've attempted to activate my iPhone, and it's still just a paperweight. The whole thing has been a mess of error messages from iTunes and emails from AT&T customer service. Shame on both AT&T and Apple. If you do not have an iPhone, my current advice is to wait until you hear these problems have been solved. It is not worth the aggravation or your time.

To prep for my iPhone, I downloaded iTunes 7.3. However, I now have an error message popping up when I launch iTunes 7.3 stating that my iTunes library cannot be saved. What a headache to have during my already frustrating AT&T activation experience! So far, there is no official fix from Apple, although some posters on MacRumors forums have given suggestions.

I received a follow-up email from AT&T this morning telling my old AT&T plan was out of date. It took them 24 hours to figure this out. They gave me a number to call. The customer service rep told me I need to go to an AT&T store and update my plan to a modern plan. She also told me I needed to get an orange sim card because if she tried to update my current phone with the current sim, the card would "burn." I laughed and asked her to repeat that. "It would burn," she said. I had to chuckle as I envisioned my phone bursting into flame, all because a customer service rep in India was attempting to modernize my AT&T account. Just think, at anytime in the past, according to this rep, AT&T could potentially set fire to my apartment while I'm sleeping, and potentially I could die. That's power my friends. Do not piss off AT&T. And check your smoke detectors.

So this afternoon, I traveled to the AT&T store, "modernized" my AT&T Wireless account, and received my new AT&T sim card. The customer service rep had instructed me to give them a call back after I finished updating my account. I decided to call them form the store and not go home. However, ny cell phone was now dead (my only phone). Thank god I stuck around in the store.

My new customer service rep told me I was all ready to go; I just needed to go home and connect my iPhone to iTunes and finish the activation.

"What's the new sim card for?" I asked.

"Oh, I don't know. They did't need to give you a new one. I don't know why they're doing that," she replied.

She then warned me there would be additional waiting time after I hooked my phone up to iTunes because "everyone is trying to activate their phones" and it's slowing down the system. "It's been around an hour wait for most people."

I'm now waiting for another email from AT&T. It's will be the fourth (the first from the iTunes store and the final three from AT&T). It's been about 30 minutes since I've hooked up my iPhone.

One lesson I've learned in life that a zebra doesn't change its stripes--at least not with a lot of mess. I am not looking forward to my experience with AT&T, and I feel very bad for Apple that they had to use their wireless network. I'll just have to look forward to the day when the iPhone is no longer exclusive. Maybe Apple's contract does not cover the iPhone II. Dare to dream.

My iPhone AT&T Activation Problems

AT&T is now processing your activation.
You will receive an email confirmation once your activation is complete.

I am one of many people who cannot use the iPhone they just purchased. The weak link in the chain? AT&T. After trying to activate my phone around 1:00 pm on Saturday, my AT&T account still has not been activated as of 7:30 pm. Instead, I've received two emails from AT&T stating that they are still processing my activation. There are nightmare reports from CNET here, and from a blogger here.

I wonder if Steve Jobs is hearing these reports and wondering if there is a performance clause in Apple's contract with AT&T. All I know is, I paid over $600 for a phone I can't use. Sure, with patience, the phone will be activated. But this is Apple, and I was expecting the iPhone to just work.

Meanwhile, I'm left to listen to music on my antiquated 1st gen iPod shuffle. See it below next to my unplugged and useless iPhone.

Buying an iPhone: The Process Will (*Update* Won't) Take A While

*Update* Apple just released info stating that the iPhone will be able to be activated from home. This should streamline the purchase of the iPhone considerably.

One ignored aspect of the upcoming iPhone release is the fact you'll be signing up for cellular service. Your purchase of an iPhone won't be a simple "buy the gadget and go" experience.

Noted Apple analyst Shaw Wu of American Technology Research in San Franciso commented on the possible affect on overall sales, stating, "The iPhone is not a simple sale, you have to sign up the customer for service. Can they even get a couple of hundred thousand people through the stores in two days?''

It does not seem likely that AT&T stores will close Friday without selling all of their iPhones. If the stores carry inventory over to the next day, expect a lot of frustration from shoppers who were next in line and told to come back tomorrow.

Buying an iPhone: Still Some Questions Left to Be Answered

Many questions still remain about the details of purchasing an iPhone.

Will there be long lines inside or outside the store? What does the data plan cost? Will there be more than one data plan? How many iPhones at launch? How come I still can't find a Nintendo Wii?

AT&T corporate better get on the ball, as there is no reason to withhold this information anymore, unless the news is bad.

My prediction is long lines for the iPhone will form outside AT&T stores starting early and then start moving at 6:00 pm. This would allow for normal store traffic to flow in and out of the store until the iPhone is sold out. The problem is having people stand outside in the sun all day--people will be dropping form heat exhaustion left and right. That would be bad PR for Apple and AT&T. My closest AT&T Wireless store closes at 7:30 on Friday. So, they know they can sell out their supply of phones in an hour and a half and then be able to close up shop, telling everyone to go home.

Whether you should even try to buy an iPhone will depend on your resolve and the number of phones available. If it's less than a million available, all but the most hardcore should forget about it. I already had the experience with waiting in line for the second shipment of Xbox 360s, and I had to get there at 3 am to have the favor of being 30th in line.

*update* Engadget is reporting that AT&T stores will close at 4:30, then reopen at 6:00 to sell the iPhone. The Apple Phone Show is reporting that no Cingular stores will be selling the iPhone, only select AT&T stores.

You'll Be Waiting In Line for an iPhone

The news today is a memo AT&T Wireless has sent to their retail stores with instructions on how to handle questions regarding the iPhone. AppleInsider has the lowdown, as well as a picture of the actual memo.

Two pieces of information stand out to me. From the memo:

Sales for the iPhone will be on a first come, first served basis.

That means customers will be camping out at an Apple store or an AT&T Wireless store if they want an iPhone anytime soon. It also means iPhones will be selling on eBay for thousands of dollars.

The second juicy detail is the wording regarding the price of the iPhone. The memo instructs stores to tell people the "4gb will retail at $499 and the 8gb will retail $599." The use of the word retail here is clever and leaves the door open to subsidized pricing. Who has ever paid retail for a phone?

Even subsidized, the iPhone still will have to cost more than most iPods; more specifically, it has to cost more than a nano, Apple's bestseller. Why would customers buy an 8gb nano if they could get an iPhone cheaper? Apple may not want to cannibalize their iPod sales.

However, maybe they should go ahead and do it. After all, weren't there 1 billion phones sold last year compared to something like 130 million mp3 players?