iPhone 2.0 Prices: $250, $350, $450 with Subsidies

Implications: Apple's iPhone 2.0 sales will achieve incredible sales due to subsidized prices from mobile operators in the US and Europe. Currently the 16GB model has a retail price of $499; I am expecting a subsidized price of just $349.99. The 8GB model, if continued, will have a $249.99 subsidized price while the top-of-the-line 32GB model will be subsidized at just $449.99.

Analysis:

Apple’s iPhone 2.0 is getting a lot of press leading up to a possible unveiling next Monday during the Worldwide Developers Conference (WWDC). Apple has stated that it will sell 10 million iPhones. I believe Apple can accomplish this goal and will surpass it by a big margin. The Financial Times stated that US and European mobile operators will be allowed to subsidize the iPhone leading to much more affordable iPhones. That would mean AT&T in the US and many more in Europe. Although iPhone sales have not been trailblazing in Europe, a much more competitive price and a significant upgrade to the iPhone should accelerate sales in Europe. FT states:

The new version of the Apple iPhone is set to be sold at significantly lower prices than the existing one, in a tacit acknowledgment by the US technology company that its previous sales strategy was not sustainable. Apple has bowed to pressure from mobile phone operators and agreed they can subsidize the latest iPhone, expected to be unveiled by Steve Jobs, Apple’s chief executive, on Monday.

There is no confirmation of what the price might be, but if you look at current smartphone offerings from AT&T, you’ll see that there are substantial subsidies and with mail-in rebates (MiR), the prices are very affordable for very expensive smartphones:

AT&T Tilt: Retail price $549.99. Subsidized price: $399.99 ($299.99 with MiR)
Palm Treo 750: Retail price: $499.99. Subsidized price: $349.99 ($199.99 with MiR)
BlackBerry 8820: Retail price: $499.99. Subsidized price: $349.99 ($299.99 with MiR)
Pantech Duo: Retail price: $449.99. Subsidized price: $199.99 ($99.99 with MiR)
Motorola Q Global: Retail price: $399.99. Subsidized price: $249.99 ($149.99 with MiR)

Based on what I am seeing on current retail prices and subsidized prices on AT&T, this is my guess at what the Apple’s iPhone 2.0 prices will be:

Apple iPhone 32GB: Retail price: $599.00 –> $449.99
Apple iPhone 16GB: Retail price: $499.00 –> $349.99
Apple iPhone 8GB: Retail price: $399.00 –> $249.99

I have a feeling Apple has figured out that there are three big groups of consumers that purchase iPhones. As a result, I think there will be three models to cater to these three markets. The budget market waits for the prices to fall and/or waits for current agreements to expire. The budget market does not have to have the latest technology but waits for when the budget allows. The middle-class market is just about the rest of us that wants new high-tech gadgets but will not spend an arm and a leg to get it. And finally there is the “I need to have the latest and greatest at any cost” market who camps out days before a product unveiling just to be the first to have it.