Apple hopes cheaper iPhone 3G will broaden market

Apple is launching the speedier iPhone 3G at reduced prices with hopes of making it a ubiquitous mobile device.

As the iPhone 3G hits stores this week, Apple is aiming to gain more users by offering it at reduced prices through carriers.

Apple has slashed the iPhone's price nearly in half, possibly attracting new buyers who balked at paying US$499 for the original 16G-byte iPhone. The new model will work on faster 3G (third-generation) broadband wireless networks for quicker downloads and come with GPS (Global Positioning System) capabilities.

In the U.S., AT&T will start selling the iPhone 3G on Friday, starting at US$199 for the 8G-byte model and US$299 for the 16G-byte model, each with a two-year contract. In the U.K., O2 will offer iPhone 3G for free with some contracts. The device will also bow Friday in 20 other countries including Germany, Japan and Australia; Apple hopes to sell it in 70 countries by year-end, including India, the Philippines, South Africa and Egypt.

Support for 3G networks will enable the new iPhone to download data up to 2.8 times faster than the earlier model, according to Apple. It will come with a 3.5-inch screen with improved battery life, talk time of five hours, standby time of 300 hours, six hours of high-speed browsing, 20 hours of audio and seven hours of video, the company claims.

The phone runs Mac OS X, weighs 113 grams (0.29 pounds), and is a hair thicker than its predecessor at 0.48 inch, or 12.3 mm. The new iPhone includes a standard audio headphone jack, which the previous model didn't include.

The new phone has some shortcomings, such as the lack of a video camera, but the new features and low price points should attract buyers now that the iPhone is tried and tested, said Fareena Sultan, associate professor at Northeastern University's College of Business Administration.

"The issue is not about the box, it's about the service," Sultan said. The carriers are assisting Apple in subsidizing the phones and ultimately hope to make money through higher-priced contracts and additional services, Sultan said.

The price drop and addition of GPS and 3G support are dramatic enough to boost consumer adoption, said Bill Hughes, principal analyst for wireless devices at In-Stat.

Dropping the price won't hurt the iPhone's enterprise adoption, but it won't open the floodgates either, Hughes said. Enterprises are looking for mobile devices to handle back-office applications, and the iPhone 3G needs to prove itself capable, Hughes said.

There are also questions in larger enterprises surrounding the security and manageability of iPhones, Hughes said.

"It takes a courageous manager to justify the skeptics around them to prove the [iPhone] as a compelling device," Hughes said.

The initial adopters could be small and medium-size businesses, Hughes said. It may take longer for the iPhone to make a dent in larger enterprises, where Research In Motion's BlackBerry is widely used, especially for e-mail.

The phone may also face competition in the consumer space from iPhone clones, said Jack Gold, principal analyst at J. Gold Associates. The original iPhone set a precedent for new devices like Samsung's Instinct and HTC's Touch Diamond, with touchscreens and similar interfaces to the iPhone, Gold said.

But Apple can't keep innovating technologically, so it is developing a proprietary software ecosystem to deliver applications that could differentiate the iPhone from competing mobile devices, analysts said. The iPhone will come with iPhone 2.0, a new software platform that builds in support for Microsoft Exchange, allowing enterprises to push e-mail, contacts and calendars from Exchange Server to the iPhone.

Developers can write applications for the iPhone 2.0 platform and sell them through Apple's online App Store, which will also launch on Friday and be accessible to users in 62 countries. Users will be able to download iPhone applications under 10M bytes over cellular networks, by Wi-Fi or through iTunes. Downloading applications larger than 10M bytes will require Wi-Fi or synchronization through iTunes on a PC. Users will also be able to distribute applications by syncing iPhones.

Markets in which the iPhone will bow Friday include Mexico, Hong Kong, Ireland, Austria, France, Portugal, Switzerland, Canada, Singapore, Italy, Spain, Denmark, Finland, Norway, Sweden, the Netherlands and New Zealand. The new iPhone will support 16 languages including English, French, German, Italian, Spanish, Portuguese, Polish, Dutch, Danish, Norwegian, Finnish, Swedish, Russian, Korean, Japanese and Chinese.

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