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iPhone 3G Only Looks Cheaper

Apple Started Chasing the Mass Market with An Entry-level $199 iPhone 3G with 8GB of Memory

Apple has a history of carriage trade pricing, and, although such practices cost it the PC market – while imbuing it with a certain cachet – the policy was enshrined in the original iPhone.

For the first time Monday Apple sorta kinda changed its tune, so to speak, and started chasing the mass market with an entry-level $199 iPhone 3G with 8GB of memory and $299 for a model with 16GB of memory, in either case a $200 price cut compared to iPhone 1.0, $300 cheaper than a year ago.

The price cut isn’t really coming from Apple – at least in the US. It’s coming from AT&T, iPhone’s exclusive US carrier, which will be paying Apple subsidies (rumored to be as much as $450 a phone) to compensate for the price cut.

Apple has forsaken taking a cut of the carrier’s monthly service fees, which will now be going up.

AT&T plans to charge $39.99 a month plus $30 for unlimited data for a two-year contract. That makes the cheapest service plan $10 more for Internet access so users can kiss the savings good-bye, and it’s still unclear how many minutes of talk time $39.99 buys. The base rate of $59.95 for the old iPhone bought you 450 minutes.

Business users get to pay $45 a month for unlimited Internet.

AT&T says the new arrangement will cost it an earnings hit of 10-12 cents a year for the next two years. It’s gambling on higher volumes in the mid-term.

Outside the US the iPhone might be free in exchange for a commitment to a carrier.

The dingus, destined to be sold in 70 countries through multiple carriers in some places, is supposed to hit the stores on July 11 backed by an iPhone Apps store, peddling Apple-approved third-party applications – like a button direct to eBay – for a 30% cut of the proceeds. There could reportedly be a thousand apps available initially, a potentially important revenue generator for Apple.

As expected, the new thinner-still iPhone includes built-in GPS, and thanks to ActiveSync widgetry licensed from Microsoft e-mail sent to and from this iPhone can be synched to corporate and home computers secured by deleting technology from Cisco for 99 bucks extra.

Exchange compatibility and Cisco VPN support are meant to get iPhone’s foot in the corporate door.

For users without Exchange servers there’s a $99-a-year Mobile Me service that Apple calls “Exchange for the rest of us” and describes as being “cloud computing-like” in giving you your “desktop everywhere.” It comes with 20 gigs of storage where you can store e-mail, appointments and address books.

iPhone will also support Office.

Jobs said 35% of the Fortune 500 is testing the iPhone.

Piper Jaffrey predicts that Apple will sell 45 million phones next year. Steve Jobs said Apple has sold six million iPhones so far and wants to move another four million by the end of the year.

Being 3G puts its Internet access close to wireline class. It’s supposed to download data twice as fast as the original. AT&T can provide 3G in 280 US markets now, 350 by the end of the year. Better be in one if you’re going to buy the thing or you’ll have to depend on its backward-compatibility with AT&T’s slower EDGE network.

The battery is supposed to be good for five hours of talk time, up to seven hours of video watching, five-six hours of web browsing and 24 hours listening to music.

More Stories By Maureen O'Gara

Maureen O'Gara the most read technology reporter for the past 20 years, is the Cloud Computing and Virtualization News Desk editor of SYS-CON Media. She is the publisher of famous "Billygrams" and the editor-in-chief of "Client/Server News" for more than a decade. One of the most respected technology reporters in the business, Maureen can be reached by email at maureen(at)sys-con.com or paperboy(at)g2news.com, and by phone at 516 759-7025. Twitter: @MaureenOGara

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