Cheaper iPhone, but higher charges

The iPhone will soon be £100 (€125) cheaper and support satellite navigation and faster internet access – but the bad news is that higher monthly service charges will probably wipe out most of the savings.

Apple revealed yesterday that it had scrapped its pricing plan for the iPhone as it unveiled a model that worked over faster wireless networks, addressing key criticisms about the device that have hurt the company’s foray into the mobile phone industry.

An eight-gigabyte version with the new features will go for £100 (€125) when it goes on sale in the US on July 11, and a 16-gigabyte model will cost £150 (€188), the company says.

Apple plans to make up the difference in sales revenue with volume – and with subsidies wireless carriers will now pay for the right to carry the gadget.

In changing the pricing arrangements, Apple is pulling out of revenue-sharing arrangements with some wireless carriers, a move that frees the carriers to charge higher prices for the service.

The new iPhones, initially to be introduced in 22 countries, are designed to work over so-called 3G, or third-generation, wireless networks and have global-positioning technology built in.

They will also support Microsoft’s Exchange software, an addition that puts the iPhone in more direct competition with Research in Motion’s BlackBerry and Palm’s Treo smart phones and is intended to appeal to the business market.

Analysts have said Apple needed to slash the iPhone’s price and make it usable on faster networks to hit the company’s target of selling 10 million iPhones by the end of 2008. Apple said the 3G iPhones downloaded data twice as fast as the older ones.

Apple Chief Executive Steve Jobs said Apple has sold six million iPhones since the first model launched nearly a year ago and 700,000 since March. That points to a steady slowdown in sales starting in the fourth quarter last year as customers waited for a 3G version.

Mr Jobs showed off the new models of the iPhone and about a dozen new applications for the device at Apple’s Worldwide Developers Conference in San Francisco.

New applications range from video games that use the iPhone’s motion-sensing technology to guide characters to study tools for medical students and a programme that allows users to find nearby mobile-phone-carrying friends on a map.

Apple also announced a new Web-based service called MobileMe, which the company describes as “Exchange – for the rest of us”, a consumer-friendly way for people to link their iPhones to their home and work computers so updates entered into one device automatically appear in the others.

MobileMe will cost £50 a year and come with 20 gigabytes of online storage.

While iPhone prices will drop outside the US too, it was not clear whether other carriers would raise monthly fees to compensate.

Apple said in a regulatory filing that under most of its new carrier agreements, it will not receive a share of subscribers’ monthly service fees as it has under contracts for the first-generation iPhone.

Mr Jobs said Apple waited to improve the iPhone for use on the faster network because the chips available when the iPhone first came out sapped too much battery life and were too bulky to fit the iPhone’s slim design.

The addition of global-positioning technology improves the iPhone’s accuracy in locating users. Current versions use a combination of cell-phone towers and wi-fi locations to help users figure out where they are.

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