What to Expect When Buying the iPhone 3G

WITH FRIDAY MORNING and the anticipated launch of the iPhone 3G drawing near, Apple (AAPL) czar Steve Jobs has, once again, worked gadget fans into a frenzied state. But unlike last year's launch, this release may entail a lot less exuberance — and a few more headaches.

Despite all the new perks that Apple's latest gadget offers — namely faster data speeds, GPS capabilities and a sharply-reduced price tag (at least, for some) — sagging consumer confidence coupled with a pricier service plan may keep prospective buyers at bay, says analyst Rob Enderle, who runs technology consulting firm, the Enderle Group.

Nevertheless, exclusive iPhone service provider AT&T (T) is preparing for a rush: its bringing in additional staff to man the stores and stocking up on bottled water to hand to customers waiting in line. "We are expecting some excitement," says company spokesman Fletcher Cook.

Even if the lines are short, however, undeterred iPhone fans will find that getting their hands on the gadget (and activating it) will be more difficult and time-consuming than it was last year. Part of the problem is that customers won't be able to purchase the phone online or activate it through their computer at home like they could with the first-generation phone. Instead, the device is only available for sale at Apple and AT&T Wireless stores. Not only that, but customers will have to sign a two-year service agreement with AT&T on the spot. Lines are expected to move slowly as customers wait for new subscribers to undergo a credit check and fill out the necessary paperwork. In total, AT&T's Cook estimates that the activation process will take 12 to 15 minutes per customer.

Why do iPhone 3G coveters have to jump through so many hoops this time? The answer is in the discounted price. Anyone who is new to AT&T or a current iPhone customer can grab an 8GB iPhone 3G for a seemingly paltry $199 (the 16GB version will cost $299 for this group) — a substantial discount to last year's $599 launch price. (Those who don't fall in those categories, namely existing AT&T customers who are still under their existing contracts, will have to pay $399 for the 8GB and $499 for the 16GB phones). Those discounts are possible because AT&T is subsidizing the phone to the tune of about $300 per handset. Fronting that kind of money means the carrier has a vested interest in making sure consumers don't solely buy a phone and then "unlock" it for use on a rival's network.

AT&T plans to recoup the difference by charging more for its service. At $70 a month, the carrier's most basic iPhone service plan (which includes 450 minutes of voice and unlimited data) is now $10 more a month than last year's plan. Not only that but the iPhone 3G plan doesn't even include text messaging. Once messaging is added into the mix — at a cost of at least $5 a month — users will pay about $160 more over the course of a two-year contract. (For more service plan details, see chart below).

"This release may be more important for Apple than the first one, even if it isn't as flashy," predicts analyst Michael Gartenberg, an analyst with JupiterResearch. Part of the reason: the new iPhone 2.0 software that will also debut on Friday. Preloaded on all 3G iPhones (and available for download on older versions), the new software will allow third-party developers to create and distribute a range of applications such as games, tip calculators and instant messaging for use on the iPhone operating system. "This takes the iPhone out of the realm of a single device to a software platform,"

For its part, Apple says it's still on track to meet goal of selling 10 million iPhones by the end of 2008. The company has already sold around 6 million phones since last June's launch.

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