Apple 2.0

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The new iPhone: I'm waiting until Christmas

June 9, 2009: 11:10 AM ET

iPhone 3G S with priceWhen does it make sense to upgrade to the new iPhone 3GS that Apple (AAPL) unveiled Monday?

That depends when you bought your first one. (This assumes you already own an iPhone; if you're happy with your current phone, you can stop reading here.)

If you are one of the 270,000 customers who bought one of the original iPhones in June 2007, your two year contract with AT&T (T) is about to expire and you can buy a new iPhone starting June 19 at the same subsidized price paid by new customers:

  • 16GB in black or white — $199
  • 32GB in black or white — $299

As opposed to the discount price AT&T is offering "valued customers" who upgrade early:

  • 16GB in black or white — $399
  • 32GB in black or white — $499

Or the full price for existing AT&T customers listed in Apple's fine print:

  • 16GB in black or white -- $599
  • 32GB in black or white -- $699

If you are one of the nearly 6 million owners of a first generation iPhone still working off your original AT&T contract, the new iPhone is a big enough improvement that you'll probably want to get one as soon as you become qualified for the subsidized price. You can check your eligibility at Apple's website: http://buyiphone.apple.com. You'll be asked for your phone number, zip code, e-mail address and the last four digits of your social security number. If you are not yet eligible, the program will tell you the date when you are.

Eligibility appIf you are one of the 15 million who bought an iPhone 3G after it went on sale in July 2008, the decision process is a little more complicated. The new iPhone is better than the one you own -- faster, longer battery life, built-in compass, better camera that can shoot video -- but not $400 better. To use high-tech's biggest cliche, it's evolutionary, not revolutionary.

Much has been written about the extra $200 to $400 Apple and AT&T are charging existing customers. TechCrunch's MG Siegler calls the new phone a "sucker's bet" because it locks you into another 2-year contract with AT&T at a time when Verizon and Sprint are rolling out 4G networks that could support the iPhone. Siegler thinks AT&T would be wise to extend its customers an "olive branch" to keep them under the tent:

"Sure, they would have taken a hit, probably a fairly big one, but ... it's really only $200 per customer — AT&T makes that off of me in two months with my bill. And if they do lose the Apple exclusivity, they will effectively be losing $1,200 (one year's worth of bills) that I otherwise would have been paying them.

"Instead, basically what it sounds like to most current iPhone owners is AT&T saying that, 'we love you as a customer so much that we're going to make you pay an extra $200 for this new device since you stuck around with us.' "

I was among the 1 million people who bought an iPhone 3G the first weekend it went on sale. My two year contract has another 14 months to go. But when I run my numbers through Apple's eligibility app, I find I can get the new-customer price six months before my contract expires. On Dec. 12, 2009, to be precise.

Which is why I'm waiting until Christmas.

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About This Author
Philip Elmer-Dewitt
Philip Elmer-DeWitt
Editor, Apple 2.0, Fortune

Philip Elmer-DeWitt has been following Apple since 1982, first for Time Magazine, and now on the Web for Fortune.com.

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