Why rumors of an AT&T 3G iPhone 'discount' don't add up

Fortune cites sources indicating that AT&T is planning to cut the price of the 3G phone to attract new customers. Others say the magazine's got it all wrong. The truth? Nobody may be straight on this one.

The financial magazine's Scott Moritz created some waves Tuesday with a post to his online column this morning stating that when the 3G iPhone takes off this June, it will come with a subsidy to those who purchase it from the carrier.

According to Moritz' sources, the phone is set to come in two flavors, an 8 GB model for $399 and a 16 GB version for $499. However, in a first for any iPhone carrier, the price would be subsidized by $200 for those who purchase it from the company's stores.

There's a catch though: If you buy it from the Apple store, you're still going to pay full price. The $200 subsidy would only be for those who purchase a two-year contract in store at the time of purchase.

Within hours of his post, the blogosphere lit up with comments on the original story, some expressing a great deal of skepticism, others suggesting what Apple may really be preparing to do come June.

In all likelihood, nobody has their facts straight here, and here's why.

1) Apple would not agree to any promotion that harms itself. While many may argue that bringing the cost down to $199 for a brand new iPhone would help push millions of new phones into consumer's hands, such a proposition is a lose/lose situation.

The Cupertino company's own stores would be hurt tremendously by any subsidization program. While yes, many iPhone customers are coming into these stores just for the device, Apple uses the opportunity to sell its other products, whether it be another iPod, or more likely one of its Macs.

By removing a reason to come into the Apple Store, the company runs a risk of harming its Macintosh business. With as many as 50% of new Mac buyers believed to be new to the platform now, why would Apple want to redirect customers away from its stores who don't already own a Mac?

2) Apple maintains tight controls on its pricing. This follows from point #1. While pricing for competitors' products can vary from retailer to retailer, one thing is certain about an Apple product: It will cost the same whether you're in the Apple Store, at Best Buy, or Circuit City.

Even Wal-Mart isn't immune to these controls: Rarely does the price of any Apple product in its stores wander more than a few dollars from MSRP. This is done to ensure that Apple doesn't end up bastardizing its own sales -- after all, it is a retailer in and of itself.

3) There is really no way short of a complete redesign of the iPhone's internals to keep the cheaper model locked to a carrier, as the report suggests. It is here where this news goes completely off track. Apple is not going to design two models of the same phone in an attempt to keep unlockers at bay. Plus, as has been shown not only on the iPhone but through other mobile devices, there aren't many ways to keep a phone "locked."

Sooner or later, hackers will figure out how to once again sidestep the methods put in place to lock the phone with AT&T. The end result of such hacks would be financially harmful to both companies: AT&T would lose the subsidy (especially considering you don't activate a phone at AT&T in the first place), and Apple would spend more money than it needs to on research and development.

Which brings me to the next point:

4) Be careful of reading into the report that Apple may be looking for some way to ease itself out of the "locked" business model. Such suggestions again make little sense. Without being on the network of choice, certain features will not work. While the phone itself has the capability to use a standard voicemail system, visual voicemail is a signature feature of the phone.

Also consider the customer support issue. In order for Apple to open up its phone to other networks, settings are necessary to make it work correctly. Anyone that has hacked into the iPhone knows that, in some cases, that task isn't always straightforward.

Here's an example from the other end of the Apple Store: When customers have problems with their Macs' Boot Camp feature for running two operating systems, Apple openly claims, "We don't support Windows." Well, the truth is, it actually does. I can tell you from listening in on what goes on at the Genius Bar of the Apple Story, that the company's still helping its customers out when they run into problems, and that includes problems with Windows.

So imagine that same unofficial support policy being extended to all the other possible GSM carriers that an iPhone could be connected to. Without a true partnership with any of these other carriers, Apple in all likelihood is going to stick with AT&T for a long time, up until 2012 as some reports have suggested.

5) AT&T wouldn't dare mess with its current pricing structure for iPhone plans, as have some other news outlets suggested. Part of the iPhone's allure its its relatively inexpensive data plan that comes with it. While yes, a 3G plan would in all likelihood cost more, it would not be a huge shift, or otherwise the typical consumer is not going to bite.

Regardless of the iPhone's new enterprise features, it's a consumer device first and foremost, and will likely remain such. The addition of business functionality is only to expand its reach, not to replace its current demographic.

Thus comparisons to other smartphones, such as the BlackBerry, are a little off base.

My conclusion here is that the Fortune story itself probably has little basis in fact, and is probably much more false than it is true. Up until now, there has been no talk anywhere of a subsidy for its phones in any market. Why would Apple suddenly reverse now?

It certainly doesn't seem like Apple's having any problems selling phones. Let's all just wait until it comes out of Steve Jobs' own mouth before we believe it.