A $99 iPhone may be in the works

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A $99 iPhone may be in the works
Analyst's report says phone would also come with a cheaper data plan
By Suzanne Choney
Feb. 10, 2009

Apple may be planning an "entry-level" $99 iPhone, one that would look and feel the same as its $199 and $299 siblings, but come with fewer features and a more budget-oriented data plan.

RBC Capital Markets analyst Mike Abramsky said in a report today the new phone will likely be introduced in June or July, when an upgraded iPhone 3G also is released.

"Checks reveal further entry-level iPhone details, including entry-level pricing," he said in the report. "Also expected is a 3G iPhone performance upgrade."

The $99 iPhone, he said, will not run on AT&T's faster 3G, or third-generation wireless, network, but rather use its slower 2.5G, or second-generation network. The phone will have Wi-Fi and Bluetooth, just as the first two versions of the iPhone have had. It would also have the same 3.5-inch screen of the current iPhone, with a resolution of 480-by-320.

Apple, which does not publicly comment on products in development, released the first iPhone in mid-2007, and the second model, called the iPhone 3G, came out in July 2008.

A RAZR-like move?

David Chamberlain, principal wireless analyst for In-Stat Research, said a $99 iPhone price is "probably a little low and, if it were any other device, would signal a deterioration of the brand. Remember how Motorola killed the RAZR's exclusivity by dropping the price — and its profits?"

Indeed, Abramsky said in the report, "We estimate the entry level iPhone would cost $195 to $225 to manufacture, vs. the iPhone 3G at $300."

The new iPhone 3G will be offered at the same prices as it is now, the analyst said, but have some new features, including a higher-resolution touchscreen of 720-by-480, a video camera and come with either 16 or 32 gigabytes of flash memory. The current model does not include a video camera and comes with either 8 or 16 GB of flash memory.

The monthly data plan for the phone, for unlimited Internet and e-mail access, is about $30 a month. The $99 iPhone will have a "light" data plan of about $15 a month, with limited usage. The phone is offered exclusively by AT&T in the United States.

Abramsky said at $99, between 20 million and 30 million of the phones might be sold in 2010, meaning the iPhone's share of the global smartphone market could go from an "estimated" 12 percent to between 14 and 19 percent.

He noted that Apple sold 6.1 million iPhones in its first year and that the Motorola RAZR sold 30 million units in its "first 18 months of availability. Our outlook assumes 20 percent of prior-generation iPhone users upgrade to the updated iPhone 3G in 12 months."

Cheaper iPods may follow

Because the iPhone also is an iPod, Apple's digital music player, Abramsky said that sales of a cheaper iPhone could cannibalize those of iPods, especially the iPod touch. In that case, he said, price cuts would likely follow for those players. The iPod touch, which resembles the iPhone, is $229 for an 8 GB version, $299 for 16 GB and $399 for the 32 GB version.

"AT&T's recent results show that the iPhone has been one of the most important reasons they have continued with their subscriber growth, taking customers not only from weaker carriers like Sprint but also dinging Verizon Wireless," said Chamberlain of In-Stat Research.

"After watching Verizon Wireless take market share based on the 'it's the network' message, AT&T now has an even more powerful tool: 'It's the iPhone,' and, believe me, they're going to want as many of them available to as many people as possible."

Chamberlain said he's not sure whether "that $100 difference between a new stripped-down iPhone is a result of AT&T subsidies or whether it's being borne by Apple, but, either way, it's going to be a big benefit to AT&T to continue subscriber growth, even as the rest of the economy is struggling."