AT&T shows thinking on new iPhone subsidy

May 23, 2008: 12:06 PM ET

By Scott Moritz

AT&T (T) laid out the case for a subsidy that would lower the price for consumers to buy the next iteration of Apple's (AAPL) iPhone.

Speaking to Reuters at a tech conference in New York Thursday, AT&T CFO Rick Lindner acknowledged that the phone has not yet been unveiled and neither has the pricing. But speaking more generally, Lindner said subsidies or promotional discounts on phone prices are a common element even in smartphone sales like Research in Motion's (RIMM) BlackBerry phones.

The buzz is growing ahead of Apple's debut of the sleeker 3G iPhone, expected during the company's worldwide developers conference starting June 9. The iPhone is expected to go on sale on the anniversary of the original iPhone introduction on the last weekend of June. As Fortune first reported, AT&T - the exclusive U.S. iPhone carrier - has plans to sell the new iPhone for about $200 by subsidizing about $200 of the customers' cost of the phone.

AT&T came a step closer to confirming the move as Lindner discussed the thinking that goes into subsidizing phone purchases to stimulate sales. He cited as an example the BlackBerry Curve that AT&T sells for the "promotional rate of $99," according to Reuters.

"It comes down to economics, how many units you think you can sell at different price points," Lindner told Reuters. "That's how pricing is determined on just about any device."

As analysts have pointed out, iPhone users tend to spend more than $90 a month on data and voice plans, meaning AT&T can recoup a $200 subsidy in a matter of months. And $200 phones are seen as within reach of a much wider consumer market than the normal $400 price of the original iPhone.

In other words, AT&T's subsidy could be the juice to make the iPhone a blockbuster seller this year.

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