As Apple showed off the next generation of iPhone, AT&T announced it will no longer share monthly revenue from iPhone customers with Apple.
Instead, the wireless carrier will purchase iPhones from Apple, and then resell them to consumers at a lower cost. The move initially will cost AT&T, but the company said it will be beneficial in the long run because of increased subscribers.
In a press release, the company said it expects to reduce earnings by 10 to 12 cents a share in each of the next two years. AT&T said this move will add to profits in 2010.
Last year, AT&T signed an exclusive agreement with Apple to be the sole wireless carrier in the United States. In an unusual move for the industry, this agreement included the revenue-sharing deal.
But now that it has been dropped, AT&T can subsidize the iPhone 3G and potentially appeal to users who were drawn to the smartphone but were unable, or unwilling, to pay the price.
With a two-year contract, an 8 GB iPhone 3G will cost $199 and the 16 GB version will run $299. By comparison, last year's 4 GB and 8 GB models debuted at $499 and $599 with a two-year contract.
Even with the integrated Wi-Fi, iPhone users still use a lot of cellular data, which equates to revenue for the wireless carrier. To plan for the new iPhone's release, AT&T recently upgraded its 3G network and also announced Monday it will be raising the price of unlimited data for iPhone users.
Customers will pay $30 a month for unlimited data, compared with $20 under the original iPhone's plan. Business users will have to pay $45 a month.
Of course, the original iPhone only had an EDGE cellular connection, while the new model utilizes a 3G network, which Apple CEO Steve Jobs said provides for a "zippy" browsing experience.
The new iPhone strategy gives AT&T another bullet in the chamber as competition in the mobile space becomes increasingly difficult. While it is the largest carrier in the United States in terms of subscribers, AT&T will soon drop to second if Verizon's proposed acquisition of Alltel goes through.
There has also been a flood of touch screen cell phones released since the iPhone's debut, many with features that equal, if not surpass, Apple's smartphone. For instance, on the same day the iPhone 3G was announced, Samsung officially unveiled its own touch-navigated smartphone, the Omnia.