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Why Are So Many People Freaking Out About The Unlocked iPhone's $700 Price Tag?

Yesterday, AT&T announced pricing for the iPhone. The most important nugget buried in the news release was that an unlocked and contract-free version will become available at some point in the future. People who want an unlocked iPhone will have to pay the full retail price of $700. Guess what? That's what cell phones actually cost.

This really should not be a surprising figure to anyone. Perform a search for "Nokia N95 8GB". The results page will show you the phone for sale at numerous sites, ranging in price from $550 (at Amazon) to $750. This is the price for an unlocked version of the phone. Right now, no versions of the N95 are available in the U.S. at subsidized prices. The retail price of the 8-GB 3G iPhone is $199 only because AT&T is paying for part of the full price in order to entice you to sign a two-year contract.

Let's not stop there. An unlocked version of the Motorola Q9h will run you $500 to $530. Unlocked versions of the BlackBerry Curve will run $280 to $380. Unlocked versions of the HTC Touch start at $400. None of these is inexpensive. The king, however, is the Nokia E90. It runs from $750 all the way up to $1,000, depending on where you order it from. Welcome to the world of unsubsidized pricing, people.

The problem is that the subsidization model in the U.S., whereby the network operators cover a portion of the cost of a phone, has skewed peoples' perception about how much things actually cost. If you think all the technology buried in cell phones really costs $0.00 to $50.00 (what most people choose to pay for their phones), you're sadly mistaken.

We know, of course, that the raw materials alone for the 3G iPhone cost Apple $173. That figure doesn't include the research that went into engineering it, the marketing, the manufacturing, the shipping from China, the distribution to thousands of stores, the training of employees, and so on.

If you want an unlocked phone (especially a 3G iPhone), it's going to cost you. Plain and simple.

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