Beware of hidden iPhone costs: Boyd

After months of hype, the great Apple iPhone rip-off is now in full swing.

Apple and the local telecommunications carriers have joined forces to cook up the sorts of tricks that hardened cynics in the telco and convergent devices world have come to expect.

A quirk of timing means that today Australia is one of the first countries in the world to sell the 3G iPhone. That is fitting because this country’s telcos have been known to lead the world in commercial behaviour that is weighted against the consumer.

The iPhone joke started on 9 June when Apple CEO Steve Jobs announced to instant applause that the 3G iPhone would sell for $US199 for the black 8GB model and $US299 for the 16GB model in black or white.

What he neglected to say at the time was that this price would only apply if the user signed up for a 24-month contract with Apple’s exclusive telco partner AT&T.

The reality is that if you live in the United States and want to go out and buy a 3G iPhone with no contract you will pay $US599 for the 8GB model and $US699 for the 16GB model. The iPhone will not be allowed to undercut sales of iPods.

In Australia, if you want to buy the iPhone outright then Optus is selling them on prepaid plans for $729 for an 8GB model and $849 for a 16GB model. But as with all telco contracts, don’t forget the asterisk and the magnifying glass.

The Optus asterisk points you to the fine print which says that to unlock the phone and use it on another telco network you will have to pay $80 either through a direct unlocking fee or one minimum initial prepaid plan of $80.

So the cost of a 3G iPhone in Australia is really $809 for the 8GB model and $929 for the 16GB mode, or about 30% more than it costs in the US.

An early adopter or gadget guru who is contemplating buying an iPhone 3G outright from Optus and then popping in a SIM card from another carrier should probably think again. If you are already on a contract then you will have to pay the early termination penalty fees which usually amount to three quarters of the cost of the remaining monthly payments.

The iPhone 3G is “free” if you enter into a 24 month contract with a minimum monthly payment of about $80 or total cost of about $2000.

The next leg of the iPhone 3G rip-off in Australia is the pricing of the data downloads.

A comparison of the plans offering the iPhone 3G for “free” on a 24 month contract by analysts at Citi showed monthly data limits as follows: Telstra – 5MB, Optus – 700MB and Vodafone – 250MB.

Telstra says its iPhone 3G customers will have access to Australia’s most extensive 3G network and that is a major competitive advantage. Also, Telstra customers can access Wi-Fi hotspots in various capital cities provided they have a BigPond account.

Optus is giving its iPhone 3G customers unlimited downloads in the first month. This could be a dangerous tease because once customers discover and enjoy the full functionality of the device they may find their experience dives in the following months with limits of 700MB a month.

Mind you, bait-and-switch has been a feature of broadband plan selling in Australia for years, with telcos luring you in on a low megabytes-a-month plan and then watching you upgrade to a higher plan at greater cost after your internet has been slowed to a crawl for breaching download limits.

Customers who breach their monthly data limits on their new 3G iPhone will be paying between 15 cents and 35 cents for each extra MB. Compare that with a typical 3G data modem plan available from Hutchinson and Vodafone of 5GB a month for about $40.

In the US, an AT&T iPhone plan costing about $2000 over 24 months, with the iPhone 3G included for “free”, has no limit on the amount of downloads. It is a similar story in Britain.

One explanation for the parsimonious data plans in Australia is that the iPhone 3G could pose a threat to other businesses within the telco conglomerates such as broadband landline services and pay-TV through Foxtel.

The third aspect of the iPhone rip-off is the lack of availability of the devices. There is confusion among industry analysts as to whether this is an artificially created shortage or a genuine lack of stock to meet demand. Either way, it is contributing to the hype and may be driving people into plans they would not normally contemplate signing. The demand was shown today when more than 300 people wanting to buy an iPhone were served at an Optus store in Sydney between midnight and 2am.

About 250,000 Australians want to buy the 3G iPhone according to research director of Telsyte, Warren Chaisatien. But only about 50,000 devices will be made available by Apple over the next few months, according to the estimate of one analyst.

A comparison of the iPhone 3G plans by Citi found the Optus plan to be the most flexible and the best value. Analyst Tim Smeallie says Optus will win market share but probably lose money on the deal. However, that outcome would go against the Optus track record in Australia where it has consistently made mobile EBITDA profit margins in excess of 35%.

The ideal situation to solve the iPhone 3G value conundrum would be to somehow combine a $40-a-month mobile connect plan (5GB of data) with a capped plan of about $50 a month.

However, securing the phone at a reasonable price may be difficult. Getting a 3G iPhone from AT&T in the US will only cost $3900 flying Qantas economy return.

This article first appeared on Business Spectator