Macopinion

The Rates Are Here, the Rates Are Here!

by Marc Zeedar macopinion@designwrite.com

Finally, after an eternity of waiting, we know what the iPhone will actually cost. Today Apple and AT&T announced the rate plans for the iPhone.

As expected, the rate plans are a mixed bag of good and bad news. While they are actually not as expensive as some people expected, they are not exactly cheap.

One problem that could be looked at as good or as bad, depending on your perspective, is that all the iPhone plans include unlimited data. This raises the cost of a basic iPhone to at least $60 a month (closer to $75 by the time fees and taxes are included). That's a lot of moolah if you're not used to paying for a data plan or if you don't currently have a cell phone plan (like me).

However, if you're used to data plans from other companies, this is actually a remarkably inexpensive service. I've heard many people say they get charged $50 a month just for their data plan, so an extra $20 for unlimited data is not bad at all. People that used to pay $90 or more per month for their phone and data service can actually save money by switching to AT&T and an iPhone.

I had been very worried that with all the hype and rabid interest in the iPhone, AT&T's exclusivity, and those surveys that claimed millions were still interested in the device despite its $600 price tag, that AT&T would have been greedy and gouged iPhone buyers with extremely steep plans (like voice for $50 minimum and $40 data plans on top of that). So I am relieved to see that AT&T is being reasonable. The plans, while not cheap, are not outrageous, and will fit in many people's budgets.

Unfortunately, this all-inclusive plan means that there's no way to use an iPhone for phone service only. Since iPhone can use WiFi for data access, I had been toying with the idea of getting one with a voice-only plan and only using data capabilities when I was near a WiFi hot spot. If I could have done that for $40/month I might have considered an iPhone, but the announced pricing structure pretty much eliminates the device for me. I currently pay zero a month for cell phone service so jumping to over $70 is quite steep. (Technically I pre-pay a $180 a year, so that's $15 a month on average, but at least my costs are controllable and I don't have to worry about taxes and extra fees.)

I'm also unhappy with the family plan option. My mom already has a Cingular/AT&T contract and she's expressed an interest in getting an iPhone. I'd talked with AT&T guys a while back about what it would cost me to sign up on her plan and the increased cost was not bad. But the iPhone rate plans are different: the minimum family plan is $80 (instead of $60) and you get only 700 minutes to share (instead of 450 on an individual plan). For the two of us that would 350 minutes each. But AT&T also charges an additional $30 for the extra line, which means a total monthly bill of $110 (not including fees and taxes). Since we could get our own individual plans for $60 ($120 total), we'd only save $5 each and lose 100 minutes for that savings. Not a great deal.

Of course, that's for just two people. With more people, the savings are much better:

Plan	Number of Lines	Total Monthly Cost	Cost per Person	Minutes per Person
Individual 450-minute Plan	1	$60	$60	450
Individual 450-minute Plan	2	$120	$60	450
Individual 450-minute Plan	3	$180	$60	450
Individual 450-minute Plan	4	$240	$60	450
Family 700-minute Plan	2	$110	$65	350
Family 700-minute Plan	3	$140	$47	233
Family 1400-minute Plan	3	$160	$54	466
Family 700-minute Plan	4	$170	$43	175
Family 1400-minute Plan	4	$190	$48	350

As you can see, once you add a third person to the mix you start to see some significant savings. Of course these are shared minutes, but if you just want several iPhones and don't use that many minutes, the family plan's not a bad way to go.

Unfortunately, the plan as structured is not too competitive with just two people, so couples are out unless they want to buy iPhones for their kids (and teens would suck up the minutes). I suspect we'll see a fair amount of "adopted" family because of these rates. For instance, I use very few minutes so the family plan with three or four people at under $50 is attractive to me -- but I'd need to find another person or two to split the cost with. Once you do that, you've got to factor in the cost of the iPhone itself -- at $500 or $600 each that's a lot money if you're buying three or four phones.

At first I was puzzled why AT&T priced the family plans like this. A friend of mine says that he can add a line on his AT&T plan for just $10 a month -- so why is AT&T charging $30 a month for extra iPhone lines? Then I realize that that's what AT&T is doing: $10 for the extra line, and $20 more for the unlimited data plan. Which does make sense. AT&T isn't gouging for those extra lines as data usage could be extensive for each extra iPhone.

However, AT&T is charging too much for the family plans considering their normal family plans include two lines for $60. With iPhone AT&T is charging $80 for a family plan -- but that only includes one line. So the two-line charge is really $110, which is quite a jump from $60, even if it includes more total minutes and unlimited data. You're basically paying an extra $20 (the total cost of services should be $90) and I don't know what you get for that, other than less minutes as part of the family plan. Seems a bit wonky to me!

(BTW, I did ask AT&T about this, via both my local store and the national customer service number, and in both cases the people were pretty clueless and I knew more about things than they did. The local guy was actually pretty funny: he didn't know about the iPhone self-activation feature and argued with me that it wouldn't work that way at AT&T stores, only at Apple Stores, which makes no sense at all since it would save the store time and effort. It could be he's worried about his job, for why do you need so many customer service people if they can activate phones themselves?)

The iPhone's Real Cost
While people initially balked at the iPhone's cost of $500/$600, that's a one-time fee -- and not that bad when you consider iPods alone have sold for $500. Even today an 8GB iPod nano sells for $250, and a nano has a postage stamp screen and won't do video. When you add in the other benefits of an iPhone -- gorgeously huge 3.5" screen, touch-screen interface, WiFi and Bluetooth connectivity -- you're already approaching $500 and you haven't even gotten to the phone part yet!

The real cost of the iPhone isn't the device itself but the service plan, and that's where things get interesting. Originally I figured that AT&T would have different levels of data service which would make choosing a plan complicated. But probably under pressure from Steve Jobs, AT&T has kept that part simple: the only difference between plans are the amount of voice minutes and number of SMS messages included.

This is great for the future which will be all about wireless Internet. Once people get accustomed to having it, they'll always want it, just like once you've experienced broadband you can't go back to dial-up. Having flat all-inclusive pricing means there's no penalty for using wireless Internet and people will get used to it quickly and it'll become a standard thing.

Since you can buy extra SMS messaging a la carte, it's the voice minutes that really distinguish the plans, so just look at how many minutes you typically use and pick a plan. But remember the annual cost is the real cost:

	Annual Cost	Cost of Device	Total first year cost
Plan (450 minutes)	$720	$600	$1320
Plan (900 minutes)	$960	$600	$1560
Plan (1350 minutes)	$1200	$600	$1800
Plan (2000 minutes)	$1440	$600	$2040
Plan (4000 minutes)	$2040	$600	$2640
Plan (6000 minutes)	$2640	$600	$3240

Starting buying several iPhones for different members of your family with a family plan and you are talking some serious money!

Of course the price of the iPhone will drop, but you'll have to wait. It may be a while, too. With iPhone fever just beginning, I doubt Apple will need to drop the price or release an "iPhone 2.0" any time soon, certainly not until after the upcoming Christmas season.

The bottom line is if you want to be among the first to have this magical device and gain all those envious and admiring glances, you'd better be prepared to open your wallet because it will cost you at least $1220 (if you buy the 4GB model). If you're Bill Gates or Steve Jobs that's not a big deal, but the rest of us... we might have to wait.

macopinion@designwrite.com