I’m sure most of you have heard about the new iPhone that was announced yesterday, the iPhone 3GS. If you want to know what the differences are between the iPhone 3G and the new iPhone 3GS check out the post after this one on the site, this post is for something a little different.

I frequent a few Mac forums just to read up on the latest happenings with the company whether they are rumors or just about new products or whatever and all I’ve been reading today are complaints about the pricing model for the new iPhone 3GS. The most common complaint comes from people that bought the iPhone 3G when it first came out last July. These people are being told that they cannot get the advertised price of $199/299 for the 16/32 gb models of the iPhone 3GS and they will need to pay anywhere from $399 to $699 to get the new phone. Obviously a few people are upset by this (and when I say a few, I mean tons). I’ve read complaints saying everything from “well they let us upgrade from the first iPhone to the 3G model for the advertised price” to “how can Apple sell this phone for $700” (there are more complaints of course).

Ok first of all lets talk about that $700 price tag for the unsubsidized phone, which will lead into the first point from above. A lot of people on the forums were complaining that this is a ridiculous price to charge for the phone and phones these days don’t cost that much, blah blah blah. Apparently they don’t understand the idea of a cell phone company subsidizing the price of a phone in order to get you in a contract for 1-2+ years. Cell phone companies will often give you a phone for a cheaper price if you are a new customer (or currently out of contract) and are willing to sign a 1-2 year contract. The cell phone company knows that over the course of the years in your contract they will make back the money that they took off of the phone price, thus making it worth it to them to give you a cheaper phone. This is how it is with all phones! Some people don’t understand this. Try walking into the Verizon or Sprint store in the middle of your contract and try to buy a new phone, they are going to make you pay the FULL PRICE for the phone. The full price is usually listed on the price tags under the display phones in very small print, that’s what you’re going to pay if you’re not eligible for an upgrade or your not out of contract. Some cellular companies will give you a little money off a new phone if you’re still under contract and want to upgrade and are eligible, but that little money off is coming off the retail price of the phone, not the $99 subsidized pricing of that Blackberry you got when you signed the contract.

This is how the iPhone 3G and the iPhone 3GS work, they are subsidized phones, which leads me into the first argument about the upgrade process from the first iPhone to the iPhone 3G. When Apple first announced the iPhone it was priced at something like $399 and $499. These prices were unsubsidized, you could walk into any Apple or AT&T store and buy one without doing anything in the store, just pay and leave. You didn’t sign a contract right there, you didn’t activate it in the store, it never even came out of the box until you got home with it. All the activation was done through iTunes at home, which is then where you agreed to the 2 year contract. AT&T did not give you a better price on the phone, you paid that retail price for the phone, which would be the same as you paying the $499-699 for the iPhone 3GS (numbers are a little weird cause people keep reporting different prices on the website).

Now when the iPhone 3G came out and was priced at $199-299 (I believe), this was a subsidized price, so like I said above, AT&T was eating part of the retail cost of the phone in order to get you to sign up for a contract. Now here’s where some of the confusion comes in. AT&T and Apple allowed people to upgrade from the first iPhone to the iPhone 3G at the subsidized pricing, but only because people that purchased the original iPhone paid the full price and AT&T did not need to recoup any costs from those phones as all the cost was on the consumer. Now with the new iPhone 3GS the subsidized prices are $199/299, but people that bought the iPhone 3G at the subsidized rate and are locked into a 2 year contract are not eligible for that pricing point which is where the $499-699 prices are coming from and is why some people are getting pissed. They don’t understand why they could upgrade from the original iPhone to the 3G for the cheap price, but they can’t upgrade from the 3G to the 3GS for the cheap price. Obviously AT&T covered part of the price of their 3G iPhone and hasn’t recouped the cost of that yet so why would they front you another ~$400 for the iPhone 3GS? That makes absolutely no sense from a business aspect and not to mention it’s how all cell phone companies have always worked, this is nothing new. Nokia releases new cell phones all the time and you can’t go in and upgrade to the latest one for the subsidized price while you’re still under contract, it just doesn’t work that way.

People have tried to come up with work around to be able to get the new phone when it comes out on June 19th, for example some people are saying they will just pay the ETF (early termination fee) of $175 to cancel their current AT&T contract and then sign up for a new one, which will allow them to buy the iPhone 3GS at the $199/299 price points thus making the iPhone 3GS cost them $374/474 respectively. While that method does put the phone cheaper than it would be if you had to pay the retail price for it, it does seem like a lot of work and chances are you are going to lose your original phone number in the process.

Now there are people that have been offered the $199/299 prices after they reach the 1 year mark of the contract on the 3G which puts them around mid-July. A lot of these people say they can wait until then without a problem if it means saving a couple hundred bucks, but of course there are those people that can’t wait. Now I may have an idea for those people that can’t wait the month, but I’m not sure if it’s worth the hassle either. Apple has a 30 day return period for the iPhone so technically you could pay full price for the iPhone 3GS when it comes out on the 19th then when you’re eligible for the lower price point in mid-July, return the phone, get your money back and then re-purchase the phone at the lower price. I’m not 100% sure this would work, but it’s possible. But you’re still going to be paying the full retail price up front.

So seriously people, you act like you’ve never bought a cell phone before. It’s not like subsidized pricing just came out of nowhere with these new phones. Even the Palm Pre (that a lot of people are threatening to switch to over their stupid arguments on the iPhone pricing policy) has a retail price of over $800. So those people that are still locked into a Sprint contract and want the Pre probably won’t be able to get it for the $199 that it’s advertised for (I’m sure they won’t be paying the $800 that Best Buy is selling for though).

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