I finally figured out why the 3G costs $130 more

[akm3]

It is a 'reverse subsidy'.

I believe Apple is PAYING AT&T a certain amount of money (somewhere between $0 and $130) to every 3G it sells. In exchange Apple, is buying a low monthly price for it's consumers, and AT&T is booking some profits in advance.

Apple also has purchased a model where no one else can offer 'unlimited' data plans so cheaply per month, and month to month no contract. It provides Apple a differentiating factor.

That's all I could come up with as a reasonable reason the 3G iPad costs $130 more. The only other option would be the 3G iPad is the 'real' one that Apple expects most people to buy, and wanted something at a $499 price as a loss leader - but if that was the case why would they pollute the channel with 3 non 3G iPads?

No, I think Apple has tricked us into pre-paying some of our data plan and giving it to AT&T.

Thoughts?
I can't wait to pre-order mine

 

[MisterMe]

It is a 'reverse subsidy'.

I believe Apple is PAYING AT&T a certain amount of money (somewhere between $0 and $130) to every 3G it sells. ...

No, I think Apple has tricked us into pre-paying some of our data plan and giving it to AT&T.

Thoughts?
I can't wait to pre-order mine

I gather that you do not have a clue how much an unsubsidized cellphone costs. Well, a good phone costs a heck of a lot more than $130. And that was before 3G. That just blows your theory that Apple is paying AT&T to carry the iPad right out of the water.

 

[Squid7085]

I doubt that is true. I think that the majority of the $130 probably pays for the hardware, and everything that was involved with putting it in and making is a legal device. Like the person above me said, even a so called "Free" phone is ~$300 unsubsidized.

 

[Babybandit]

It could be a small decisive factor in the negotiations, but remember, USA isn't the world, nor is AT&T the world's carrier.

 

[ntrigue]

OP, you're absolutely right. Appleinsider and iFixIt concluded this weeks ago.

The chipset for 3G costs $24. The remainder over the course of a year is $9/month to AT&T. Instead the consumer sees '$15'.

 

[Nebrie]

Then why does Dell and HP sell 3G modem addons for $125 with service at $60/mo?

Keep in mind that while the hardware costs $24, there are a couple hundred patents on the chip and the patentholders expect to be paid a fee for every single one of them. The exact amount is a secret and varies from company to company (see Apple-Nokia battle) but generally rumored to be just south of a hundred.

 

[Barbie]

they added $130 to the price so that in international markets (where the iPhone is available non-contract) the iPad would be a little more expensive than the equivalent 16GB/32GB iPhone

 

[jb1280]

Let's, for the sake of argument, assume that all $130 for 3G goes to ATT and that the radios are completely free.

If I go to ATT wireless and get a laptop connect card, subsidized, with a 2 year contract, I am spending $1440 ($60 per month) over the course of the service.

If I buy an iPad 3G, purchase unlimited 3G every month over the course of 2 years, I spend $720. Through in the $130, and ATT is leaving $590 on the table.

I'd still say that's a great deal.

If we really want to talk 3G conspiracy theories, I would wager that it is more likely that ATT agreed to the iPad plans in order to keep iPhone exclusivity than Apple backdoor subsidizing ATT through 3G radio costs.

 

[drummerlondonw3]

well...lets move on from subsidies and think even more basic.

3G is a near necessity for a device like this. People will certainly pay a premium for this therefore apple will charge more.

This would happen with or without a subsidy

 

[kernkraft]

Greed, perhaps?

If anybody, then AT&T is paying Apple, not the other way around.

You can try to justify the overcharging, but I think it's mostly greed, capitalism, the safe knowledge that some companies and people will pay the premium... You can call it anything, but I don't thin that it's AT&T's cut.

 

[fishmoose]

I doubt AT&T has anything to do with the iPad pricing, after all you don't need to use it with AT&T since it's unlocked. And what about carriers outside the US?

 

[johnmoorejohn]

With the option to switch in and out anytime, does anyone know if you need to have an ATT account for any other device in order to have service for the iPad? Will there be account holders who have nothing but a $15/mo bill every now and then when they decide to enable it?

That could factor in to overhead costs.

 

[EssentialParado]

I think the proof will come when we see pricing in other countries. In the UK for example, nearly every phone network sells the iPhone now, so it won't be subsidized by a carrier unless the carrier sell the iPad themselves, but if you buy it from Apple it won't be subsidized to any single carrier. If it turns out to still be around $130 more expensive for the 3G iPad in the UK, then it should be evidence enough that it's not subsidized to AT&T in the US, either.

 

[samcraig]

I think the proof will come when we see pricing in other countries. In the UK for example, nearly every phone network sells the iPhone now, so it won't be subsidized. If it's still a lot more expensive for the 3G iPad in the UK, then it will be proven not to be subsidized in the US either.

"Proven" no. All it will mean is that Apple is staying to their pricing to avoid the issue altogether.

No one is saying the iPad is subsidized. Ok - I'm not saying that. What I would gather is that a deal was struck with AT&T for no-contract access and a new price point (14.99) for limited data. In exchange, Apple is kicking money in for every 3G device sold back to AT&T.

It's not the iPad being subsidized per se - it's the data being subsidized.

 

[akm3]

"Proven" no. All it will mean is that Apple is staying to their pricing to avoid the issue altogether.

No one is saying the iPad is subsidized. Ok - I'm not saying that. What I would gather is that a deal was struck with AT&T for no-contract access and a new price point (14.99) for limited data. In exchange, Apple is kicking money in for every 3G device sold back to AT&T.

It's not the iPad being subsidized per se - it's the data being subsidized.

That is precisely what I was trying to imply with 'reverse subsidy'. The hardware mfg paying the carrier for cheaper data instead of the carrier paying the hardware mfg for cheaper hardware.

 

[4DThinker]

My theory: So BestBuy can sell you an iPad with 3G while signing you up for a year or more of service. Incentive? A $100 rebate. $130 - $100 = $30, or about what the hardware and licenses cost for the 3G chip.

 

[Michael CM1]

OP, you're absolutely right. Appleinsider and iFixIt concluded this weeks ago.

The chipset for 3G costs $24. The remainder over the course of a year is $9/month to AT&T. Instead the consumer sees '$15'.

So you're saying the physical hardware costs $24? If so, what about the cost of producing other models, working it into the OS, separating distribution, etc.

This is why I hate these part cost breakdowns that happen on every device. Some Web site will say the iPhone's parts cost $X, and the story usually reads as just a parts listing. I think the 3GS parts cost about $220, so some unintelligent people will think Apple is taking about $400 off the top of those when you go with the $600 non-subsidized price. Those stories really have a journalistic duty to point out that the parts don't assemble themselves and a collection of hardware is nothing without proper software.

 

[jb1280]

That is precisely what I was trying to imply with 'reverse subsidy'. The hardware mfg paying the carrier for cheaper data instead of the carrier paying the hardware mfg for cheaper hardware.

Explain to me how it is in ATT's interest to take a fraction of what they could make in a normal data plan through some sort of ridiculous 'reverse subsidy?'

If I was in ATT's position, I would sooner fully subsidize the iPad and lock customers into an expensive 2 year contract than make $130 (max) per device, and offer customers the option to not pay ATT regularly and a service at half the price.

It would be akin to your boss saying he will pay you 10% of your salary up front, cut your guaranteed salary to zero, and on good months pay you half of what your old salary per month would be.

Like I've already said, if we're going to speculate on the ATT Apple relationship on the iPad, the focus really should be on what ATT would need to do to maintain iPhone exclusivity.

 

[Gav2k]

Why do people keep skipping royalties??? Broadcom or qualcomm will be taking a large chunck of the $130.

 

[bossxii]

Why do people keep skipping royalties??? Broadcom or qualcomm will be taking a large chunck of the $130.

Because they are clueless and want to paint a picture where if parts cost $100 and Apple sells the device for $300 they are clearly making $200 profit per and are screwing the world!

Ignorance is bliss it would seem.

Facts just muddy up their fantasy world of "everything should be free".

 

[MTI]

Undoubtably, Apple is also paying AT&T for not allowing tethering on the 3G network since that must be of some unknown benefit to Apple . . . the truth is out there . . .

 

[oneeach]

If we really want to talk 3G conspiracy theories, I would wager that it is more likely that ATT agreed to the iPad plans in order to keep iPhone exclusivity than Apple backdoor subsidizing ATT through 3G radio costs.

This seems to be the most likely to me. ATT does not want to loose the iPhone and Apple didn't want people tied to a contract AND a low monthly charge. Win/Win for ATT and Apple.

 

[chstr]

it makes absolutely no sense to me why a product that will generate more income for companies is priced higher than the product that will not generate data income :/

 

[akm3]

Explain to me how it is in ATT's interest to take a fraction of what they could make in a normal data plan through some sort of ridiculous 'reverse subsidy?'

If I was in ATT's position, I would sooner fully subsidize the iPad and lock customers into an expensive 2 year contract than make $130 (max) per device, and offer customers the option to not pay ATT regularly and a service at half the price.

It would be akin to your boss saying he will pay you 10% of your salary up front, cut your guaranteed salary to zero, and on good months pay you half of what your old salary per month would be.

Like I've already said, if we're going to speculate on the ATT Apple relationship on the iPad, the focus really should be on what ATT would need to do to maintain iPhone exclusivity.

How is it in AT&T's interest? Exclusivity* on the iPad. Easy subscription from the device. Keeping Apple happy to lengthen the iPhone exclusivity. Keep iPad out of Verizon's hands. Etc. Etc. Etc.

*Yes I realize it isn't 'exclusive' but unless I'm misunderstanding (and it is quite possible) there is no other carrier who has a SIM and data plan that would work and/or compete with AT&T in the US right now.

 

[akm3]

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