International Mac Podcast

Wow, I really hope I am not making a habit out of this whole blogging thing, but the people of the tech world are just making me so angry at their stupidity, that I just have to enlighten them. Today, I am referring to the iPhone 3G to 3GS upgrade cost, and AT&T’s recent cave.

Note: In this article, I will refer to AT&T, but most of this information is applicable to any carrier

Let’s start with the basics. The original iPhone was an unsubsidized phone. That means that you paid the entire cost of the phone, and AT&T paid Apple a certain amount over the life of the contract, and that is how Apple made a good chunk of their money. When you terminate a contract on an unsubsidized phone, AT&T only loses the amount that you were paying them for the service, which to them is all profit. So you paid for the service, and when you terminate the contract, you don’t get any more service, so AT&T doesn’t lose anything.

On the other hand, the iPhone 3G, and the new 3GS are subsidized. That means that AT&T is paying some percent of the cost of the phone to Apple when you buy the phone, so you don’t have to pay such exorbitant prices for the phone, and then they make up their losses over the length of the contract (in AT&T’s case, the 2 year contract). This is why when you get a pay as you go plan, or “GoPhone” plan, as AT&T calls it, or a plan without a contract commitment, you get less or no subsidy on the price of the phone. However, when you terminate the contract, that is one of the reasons you must pay an early termination fee. In addition to them allowing you out of what is essentially a legally binding document, you have to finish paying for that subsidy. Thus, a subsidized phone is not a cheaper phone, but in fact one that you pay for over the life of your contract.

So, back to the iPhone 3GS upgrade price conundrum. Last year, when we were going from the iPhone to the 3G, we were going from unsubsidized to subsidized. As we talked about two paragraphs ago, ending an unsubsidized phone plan early, like all upgraders were, is not a problem, because you just stop paying for the services you no longer intend to use, and AT&T doesn’t lose anything. In fact, in this transaction, they gain, because over the life of the contract they do better in the end on a subsidized phone than they do on an unsubsidized.

Now, we are going from subsidized to subsidized, and terminating our existing contract early. As we learned what is now once again two paragraphs ago (see what I did there?), by terminating a subsidized phone plan early, AT&T would lose money, so they charge you the early termination fee to make up for the money they lost when they subsidized your iPhone. When you are upgrading to the 3GS, you pay this early termination fee in the form of the not-so-subsidized, but still subsidized, 3GS. This is why those people who are not eligible for an upgrade (i.e. those who bought the 3G), have to pay higher than normal subsidized prices, but not the highest, unsubsidized price, because they are paying off the rest of their iPhone 3G. In addition, even if it wasn’t logical, it is a very standard practice with upgrading subsidized phones across the entire market, so it isn’t just AT&T. So if we are going to treat AT&T like the bad guys (and I’m not saying they aren’t), why wouldn’t they do exactly what everyone else is doing? This isn’t exclusive to the iPhone!

Meanwhile, people who don’t understand all this, and how AT&T has to make money somehow, have been whining and complaining about how much more expensive it is for them to upgrade and how AT&T was screwing over the early adopters and how they are in the hands of the devil and how Steve Jobs is angelic and blah blah blah. Eventually, AT&T got sick (and tired, Billy Cosby anyone?) of all this whining, and caved. They gave anyone who will be upgrade eligible in July, August, or September the fully subsidized price, even though they haven’t paid for their 3G in full yet. (For the more detailed information, I suggest you go to AT&T’s post about it and read it thoroughly, over at http://www.att.com/gen/press-room?pid=1574). I think this was the WORST (that’s right, worst) thing AT&T could have done. They should have stuck to their guns and put up with the whining. Why, you ask? Because now that they have done this once, people who upgrade their iPhone every year will expect it now, like when you pet a dog after he whines, sooner or later he realizes that if he whines long enough you are eventually going to pet him, so he whines more! AT&T doing this every year just isn’t feasible for them, because as we said three paragraphs ago (I am doing quite a lot of referencing in this post, aren’t I), by terminating early, and not paying that fee or upgrade price, AT&T is losing money, and they have to make money somehow. On the other hand, if they are intelligent, and they don’t do this every year, then there will be even more whining! And I hate whining! So, whiners, please stop whining, and let AT&T continue doing business the smart way so they don’t have to go filing for bankruptcy, leaving you stranded on T-Mobile, the suckiest GSM carrier with the suckiest data in the US.

Now, I hope that you all understand the way these things work a little better now, and will all stop whining! However, I am not perfect, nor do I pretend to be (except almost all the time). So if you are some super smart person who actually knows about this stuff first-hand, as opposed to me where this is all just collected from things I have read, feel free to comment and correct me.

Coming up from Connor P, I am working on two more blog posts, one is a very long overdue review of Wiretap Anywhere, and the other is a combined review of BusySync and the soon-to-be-released-in-private-beta BusyCal. Stay tuned!