Has AT&T considered this iPhone scenario?

Eagle eye and fellow EI, Chris Selland, points out this plausible scenario.

In spite of numerous Apple threats, lots of buyers, particularly overseas ones, never triggered their AT&T service which with the first iPhone could be done on the web. With the 3G version, AT&T will only sell them with in-store activation.

But check out this memo to AT&T stores leaked by Gizmodo "If the customer cancels service after 30 days, they will be charged the ETF. The customer is not required to return the device to cancel after 30 days."

ETF is early termination fee - should be $ 175. Since you have to keep it at least 30 days you end up with the cost of the base voice and data plan and taxes for about $ 75. Since the new 8GB version is $ 200 less than version 1 in effect AT&T is subsidizing those that want the new iPhone and plan to use it with WI-FI or try to hack and use with other mobile networks.

So, worst case scenario - AT&T store costs skyrocket as everyone has to go in to activate, and a large percent cancel after a month and sell on eBay.  Or buy for their friends overseas since even at $ 500 (phone for $ 199 + ETF of $175 and first month at $75 plus taxes of say $ 50), with the way the dollar is, the US version will likely be a bargain compared to many other parts of the world.

Readers, can you drill holes in Chris's gotcha?

Comments

[Gowri]

Jobs said prices in all countries will be maximum $199. Why are you saying $500 will be a bargain outside the US. Doesn't make sense.

[vinnie mirchandani]

Gowri, yes, Steve Jobs said he would try and equalize pricing - more or less. That should reduce the incentive to buy in US and ship overseas. But for him to deliver at that price, local carrier partners will similarly be subsiziding and may not have a 30 day cancel policy or have a larger termination fee.

Who would have thought there would be global arbitrage around the first iPhone - could also happen around this one.

Additionally, a number of US iPhone I users are primarily WI-FI users...expect many interested in the 3G version would also be ok with not having the AT&T service.

[anonymous]

Will this happen in volume? NO
Is there a risk - like Selland points out? YES
Will dent AT&T's business? NO

It is all in goodness.

That said Apple should open up. Locking down is un-Open Market principle.

[Anay]

Remember that even the 1.0 version was freely available as an unlocked device and yet hardly garnered 10% of the total iPhone market. This effectively meant that the 10% was merely the cost of doing business and did not threaten AT&T and Apple's business model. Likewise for 2.0, is the buy-and-cancel scenario possible? Sure it is- will it interest even 5% of the customer base? Seems highly unlikely.

[vinnie mirchandani]

Anay, way more than 10% bought the iPhone but did not trigger the AT&T service...don;t have the precise number but at one point about 25% were "unaccounted for".

It's not about whether it threatens AT&T. it's about consumer choice. People love the iPhone. They are lukewarm about AT&T service. Many are downright unhappy with its pricing.