How Much It Costs to Upgrade to an iPhone 3G S

To read David Pogue’s review of the new iPhone 3G S, click here.

Shortly after the new iPhone 3G S was announced, I began receiving e-mail from readers, filled with outrage and shock. Here’s a tiny, edited excerpt from one of them:

“Apple should be ASHAMED. With the launch of the 3G S, this loyal Apple and AT&T customer will have to pay $700 for the 32GB iPhone, while a new customer will pay $400 less for the same phone.

“In no other area of commerce would this price gouging of over 100% be considered ethical, sensible, reasonable or even, I wonder, legal.

“Apple persists in a shady, shoddy strategy that I find revolting. To quote Billy Madison, ‘May God have mercy on your soul.’ Apple, you used to have one.”

Well. Where to begin?

OK, first, a little lesson in American cellonomics.

Guess what? The “$200” iPhone 3G S does not really cost $200. I mean, look at it! It’s practically a micro-laptop. No way could anyone sell it for $200 and make money.

Welcome to the world of subsidized cellphones. The $200 is just a down payment. You’ll pay off the rest through the remaining months of your contract with Verizon, AT&T, Sprint or whatever. (Didn’t you ever wonder how those guys could advertise “free” starter cellphones? Clearly, there’s no such thing as a free phone; the carrier is basically advancing you the money to buy that phone. By signing a two-year contract, you’re agreeing to reimburse the carrier over time.)

Therefore, it’s not greed or price-gouging for AT&T to charge existing iPhone customers more than it charges new customers for the new iPhone. It’s completely fair.

See, if you’ve had your old iPhone model for only a few months, you haven’t finished paying it off. AT&T needs to recoup what it paid Apple for your old iPhone in the first place.

By the way, if you don’t care for all of this subsidized-iPhone business, you don’t have to take it. AT&T is happy to sell you a new iPhone outright, with no two-year contract—for $600. (That should also give you some idea of what the iPhone really costs.)

Now, you might well argue: “Well, hey, how long does it take me to pay off my subsidized phone? Surely not the entire two years!”

You’re right. It’s somewhere between 12 and 24 months. Why does it vary? Because different people are on different plans. Some people pay $70 a month, some pay $150, whatever. The more you pay each month, the faster AT&T recoups the phone’s real cost.

Once AT&T has recouped the full price of the older iPhone, you are “upgrade eligible.” You can now buy a new phone at the new-customer price. At that point, the cycle begins anew. (And by the way, yes, you’ll face the same issue in June 2010 or whenever the next iPhone model appears.)

AT&T thought it was doing existing iPhone owners a favor when it announced the “early upgrade” program. That is, no matter how long you’ve had your older iPhone, you can upgrade to the new one for $200 above the new-customer price ($400 instead of $200, for example). That $200 takes care of whatever you still “owe” on your old iPhone.

Obviously, iPhone fans didn’t see it that way. They saw it as gouging.

One key reason for the unhappiness: We didn’t encounter this mess *last* year.

That’s because the original iPhone was *not* subsidized! Remember that? You paid $600 for it in June 2007—the full retail price. AT&T had nothing to recoup. So a year later, AT&T offered everybody the $200 “new customer” price on the then-new iPhone 3G.

Beginning with that model, however, Apple and AT&T changed tactics. They started using the cellphone-industry subsidizing system—and invited all of this confusion.

In any case, today, AT&T capitulated to all the misplaced outrage, and offered a concession to certain current iPhone owners. [UPDATE: If your AT&T rep is unaware of the new offer, direct them to the announcement here: //budurl.com/attopenletter.]

Now, the following is really complicated; it hurts my brain, too. But if you have an iPhone already, and you want the new iPhone 3G S, here’s the bottom line:

First, find out if you’ve finished reimbursing AT&T for your iPhone—that is, if you’re “upgrade eligible.”

To find out, go to www.att.com/iphone. Click “Check my upgrade eligibility” and plug in your phone number and password. You’ll be shown if you’re “upgrade eligible” already–or, if not, when that great moment will arrive.

IF YOU’RE ALREADY ELIGIBLE:
You can get the new-customer price on the new iPhones ($200 or $300). This is probably the case if you own an original iPhone; after all, you’ve probably been paying monthly for over a year.

IF YOU’LL BE ELIGIBLE IN JULY, AUGUST OR SEPTEMBER 2009:
Thanks to the special offer announced yesterday, you, too, can get the new-customer price on the new iPhones ($200 or $300). Basically, AT&T is forgiving the last 2.5 months of your contract. (It’s probably made its money back on your iPhone 3G anyway, so why not?)

(If you prepaid for a new iPhone before AT&T made this offer, you’ll get a credit for the difference.)

IF YOU WON’T BE UPGRADE-ELIGIBLE UNTIL AFTER SEPTEMBER:

You’ve got a choice to make. You can:

* Keep using your old iPhone until you *are* eligible, then pay the new-customer price for the new iPhone ($200 or $300) at that time.

* Get your new iPhone right now by paying the “early upgrade” price for the new iPhone ($200 above the new-customer price).

It actually all makes sense, in a twisted, legalistic, financial sort of way. May God have mercy on our souls.

Comments are no longer being accepted.

Abhiroop Basu June 17, 2009 · 2:50 pm

Why don’t they offer trade in services? That is, you trade in your current iPhone and pay the new-customer price for the new iPhone.

Maf June 17, 2009 · 2:59 pm

It’s not $200 above the new customer price.
AT&T want people who upgraded to the 3G on day one, as I did, to pay $400 above the new customer price and an $18 upgrade fee, for a total of $717.

fotostuf June 17, 2009 · 3:11 pm

My God man! What are you saying?!?!? A company should be allowed to make a PROFIT?!?!?!? Why that’s just… just.. just… CAPITALISM!!!! AAAAAGGGHHHH!!!!!

Deal with it people! I still have my old $600 iPhone… and have NO REGRETS!

Ahmed Gonzalez-Nunez June 17, 2009 · 3:40 pm

As I have it understood, AT&T has slightly extended its 30-day grace period —wherein you can “return” any contract-phone you have bought without incurring contract penalties— so that customers who had bought the iPhone 3G 16Gb on or after May 9, 2009 can exchange it for the 3GS 32Gb as soon as it comes in on June 19 for a 20% re-stocking fee. The $60 are definitely well worth it. I guess a similar deal would apply to those who want to upgrade their 3G 8Gb to the 3GS 16Gb.

jz June 17, 2009 · 3:41 pm

Perhaps AT&T could make an offer where you can pass your upgrade ineligible iPhone on to someone else and have them take over the remaining time on the contract. The original user gets the new phone for the lower price and a new 2 year commitment and AT&T gets a new customer for the old phone.

Jt Chiodi June 17, 2009 · 3:44 pm

This when you are eligible is confusing. I bought the iPhone 3G last year on the day of its release and upgraded my wife’s line to the original iPhone. Her unsubsidized iPhone is eligible for the low price, but my 3G is not until December. How can anyone be eligible for the 3G phone early upgrade price ahead someone who bought it on the first day it was released? I bought mine last year in June, but I must wait to December to upgrade. I probably will call AT&T and ask them

William Beem June 17, 2009 · 4:11 pm

AT&T is still playing games. When I first checked, my eligibility for an upgrade was 12/15/2009. I bought my iPhone 3G on launch day (with that painful line at the Apple Store). Now, my upgrade date is 3/14/2010 (or a day later on the Apple page). Why?

Why are some people eligible in September if they purchased an iPhone 3G? My guess is that it may have to do with their plan, as you mentioned in the post. Since I have a 450 minute plan, I presume it takes me longer to become eligible than someone with a 1500 minute plan.

That still doesn’t explain why my eligibility date moved, though. However, let’s assume that AT&T puts me off until next March. By that time, I’m likely going to wait for yet another new iPhone and possibly a new carrier. Why would I sign with AT&T again if there’s a better proposition from Verizon coming next summer?

AT&T is very short-sighted on this issue. You claim that they aren’t being greedy, and you’re right. If they were truly greedy, they’d be trying very hard to ensure paying customers continue owing them money every month. Instead, they’re leaving a door open.

Jim Ratliff June 17, 2009 · 4:17 pm

AT&T’s website (the link you suggest) is currently (circa 1 p.m. California time, 6/17/09) unaware of yesterday’s capitulation by AT&T. The customer-service rep at AT&T I finally reached on the phone was unaware of it, too. I told her about this post, she put me on hold, and learned from her manager that this change was in the process of being announced and would be implemented on the AT&T web site AS OF TOMORROW (6/18).

Big Bill June 17, 2009 · 4:19 pm

Does this mean if I pay for the iPhone up front, I will get a discount on the monthly cost of paying for an contract with AT&T? Assuming that it runs in the neighborhood of $600 for an iPhone, that means I should be getting a discount of $200 per year for the length of a two-year contract, or $400 for a one-year contract. $16/$32 a month is nothing to sneeze at, particularly in this economy. I’m not arguing with your basic premise, but there should be some transparency to the process so you know what you’re getting into, and there should be an option, as you say, to buy it outright but to take the discount off the monthly fees (unless I missed something on AT&T’s website).

Brian Bauhs June 17, 2009 · 4:26 pm

I am eligible for upgrade on August 3rd so I qualify for the early upgrade mentioned in the article but no one at AT&T customer service had heard of this. When I checked the price it showed $499 for the 16gig and $599 for the 32gig 3G S phones.
I called customer service and read the article to them. They put me on hold and came back a couple minutes later and said that no one there had heard of such an offer and it wasn’t in their system.

What is the source of this offer? I’d love to know so I could get the phone for the “new customer” price.

MikeTeeVee June 17, 2009 · 4:31 pm

Instead of an upgrade fee of $200 or $0, they could offer a monthly sliding scale based on how far you are into your contract.

Another option: Instead of hiding the subsidy, show it on your monthly bill as “zero percent” financing. You put $200 down and pay off the balance on your monthly bill. (I’m assuming the net monthly payment is the same.)

That way, your upgrade fee (or early termination fee, or broken phone replacement fee) is out in the open. It’s whatever you still owe on the phone.

Better yet, your monthly bill drops as soon as you pay off the subsidy.

The problem is they’d make less money that way. A lot of people don’t immediately replace their phone when the subsidy is paid off.

OMG ! Ponies! June 17, 2009 · 4:34 pm

Except the “early upgrade” price is $200 above the new customer price while the pro-rated ETF is around $115. So the “early upgrade” price is a ripoff. It’s cheaper to cancel and re-sign up.

DrRick June 17, 2009 · 4:35 pm

David et al,

I’m “upgrade eligible” in mid-July, but the AT&T rep told me today that I must pay a $75 premium to purchase the new iPhone 3G S (I have a 3G) before that date at the new customer price.

Scott June 17, 2009 · 4:37 pm

It’s kind of disappointing that people would be outraged at this. No one forced them to buy an iphone at subsidized prices, but of course few people would choose to buy it full price, would they?

People just feel they deserve things or are entitled to things without stopping and thinking about the fact that nothing’s free.

I’m glad AT&T is making it easier for those with only 3 months left before they were originally upgrade eligible, but unfortunately people will still complain and will believe AT&T was gouging that that they had no choice but to relent.

I’m not a huge AT&T fan. They nickel and dime people to death and they weren’t ready for the launch of the iPhone 3G S. But they were not the bad guys in this particular instance.

matthew June 17, 2009 · 4:38 pm

But David, if you buy an unsubsided iPhone, AT&T will not let you get service without a two year contract.

The people who have had iPhones on Pay-As-You-Go plans have been contacted in the past month and told to either sign a two year contract or suffer “unreliable data service”.

So even if one buys an unsubsided phone from AT&T or EBay, one would still need to lock into a two year contract at the same rates – essentially paying AT&T the subsidy on the phone without every recieving said subsidy.

That’s not cool – I understand what you are saying, but then why is there a two year contract requirement for people who aren’t buying subsidized phones? Why is the AT&T Go-Phone plan no longer usable with the iPhone?

Greg Bech June 17, 2009 · 4:48 pm

That makes sense. Now, if you could just explain why the cable companies give the best deals to the new customers…

John B. June 17, 2009 · 4:57 pm

Who says a $200 iPhone doesn’t cost $200? All the numbers Apple and AT&T are spouting are purely marketing figures. They mean nothing. The point it AT&T is supposed to make money on the service, not the hardware. This phone is supposed to break the traditional cell phone paradigm. This is different from iPods because there is a cellular contract that Apple needs to consider. I don’t mind paying a little more tha the “subsidized” price every year for a new model, but this is pure gouging. They could and should charge less.

Jens Ayton June 17, 2009 · 5:24 pm

I find it hard to believe that it takes up to 24 months to reimburse AT&T at $70/month. In Sweden (with a sparse population and good 3G coverage), an 8 GB iPhone can be had for (just under) $113 + $38/mo for 24 months, totalling just over $1000. I haven’t sifted through AT&T’s plans in detail, what with the need to create an account first and such silliness, but it looks like the cheapest cost is in the region of $2000 without SMS (another $360 for 200/month for 24 months).

The Swedish plan has only 100 minutes, 100 SMS messages and 100 MB of data (and worst of all, no visual voicemail), but this difference should be enough for AT&T to gold plate their cell towers and still turn a profit.

leef June 17, 2009 · 5:27 pm

Who cares, if you own a 3G, the 3GS isn’t worth upgrading, at any price.

Russ Monaco June 17, 2009 · 5:29 pm

Along the lines of what matthew was saying, no one has addressed this issue ANYWHERE, and David I know you can get to the bottom of it (even though it won’t matter for another year).

No problem paying for what we get, and since I bought my subsidized phone, I should pay more over the course of THE CONTRACT. BUT once my contract is up, shouldn’t I pay less and be able to keep my phone? As an example the original iPhone wasn’t subsidized and had only a $20 a month data fee. The subsidized iPhone pays $30. So therefore when my “subsized contract expires” shouldn’t I at least have my monthly fees lowered to make up for the fact that ATT has made there money off me. I may just want to keep my perfectly functioning 2 year old phone on a month to month basis? David can you find us an answer please!

bryanwe June 17, 2009 · 5:38 pm

if i purchased the original iphone two years ago for $600 and also paid the monthly fees for voice and data access, i could have purchased a hyundai already.

Islara June 17, 2009 · 5:39 pm

So, what happens if you don’t have an iPhone now but you are eligible for an upgrade in the next 3 months? Can you still get the new iPhone for $199 now?

alansky June 17, 2009 · 5:42 pm

I think it’s funny that all these complainers have been blithely going along with the same deal for years and years without complaint until now. Until the iPhone came out, one cell phone was basically as good as another. Now everybody wants an iPhone—nay, craves an iPhone—and is ready to demolish anyone or anything that stops them from satisfying this desire.

Mobile carriers have been milking their customers since time began. Is everybody really just now noticing??? Is it really news to all these outraged customers that when a $600 iPhone is offered for $199, something’s gotta give? Everybody sounds like they’re so entitled, so mistreated. I think it’s gonna be a field day for therapists!

Mikeyrue June 17, 2009 · 5:47 pm

I can’t wait for an “Open” iPhone… as in open to carrier choice.

travis June 17, 2009 · 5:55 pm

I agree with John B., and the fact that they are able to halve the price of the “old” 3G phone at will seems to prove that the pricing is based more on what they can get than any actual cost of the phone itself.