iPhone proves phone subsidies still rule

When the first generation iPhone launched about a year ago, it was unsubsidized and pricey--$499 for the 4 GB version and $599 for the 8 GB version.  Yet people lined up to purchase it.  Reviewers loved it and Apple sold lots of devices--six million in about a year.

Many in the industry thought the iPhone did more than just revolutionize the wireless handset market with its innovative touchscreen design and ease of use. They believed that it proved once and for all that consumers don't need phone subsidies. Give them a great device and they'll pay a high price for it. 

But it's now a year later and that theory isn't panning out. Six million devices sold in a year is great but it's not enough to bring the iPhone to the mass market. And now AT&T and Apple have aligned to subsidize the 3G iPhone, bringing the price point to a much more desirable $199 with a two-year contract. Sound familiar? Yeah, it should. That's the same price point and contract that carriers typically offer other smartphones to consumers.

It appears that we are back to the same tried-and-true model. Carrier-subsidized devices may irk some because they enforce the long-term contract mentality, but the subsidies rule when it comes to delivering devices at a price that's compelling to most consumers. --Sue