True Cost of an iPhone 4 is Thousands, Not $199 or $299

Steve Jobs announced the long-awaited iPhone 4 today, but what does it actually cost to buy and maintain Apple’s latest gadget?  The answer depends on which model you buy, if you’re eligible for a discounted iPhone from AT&T and which AT&T plans you select.

Those who are happy with their current iPhones will definitely appreciate many of the improvements found on the iPhone 4, but there are viable alternatives for those who are displeased with their current devices or AT&T’s network. The total cost of the iPhone 4 is much, much higher than the $199 price tag you’ll see in Apple’s marketing materials over the coming months. This isn’t a surprise for current smartphone owners, but it may come as a surprise for those upgrading from standard ‘dumbphones.’

Forget $199, An iPhone 4 Costs Thousands of Dollars

The absolute minimum total cost of an iPhone 4 over the two-year AT&T contract is $1,674.52 before taxes, regulatory and miscellaneous fees. That’s with the bare-bones 250MB per month data plan, 450 peak minutes per month, 200 text messages and zero paid applications or downloads. If you never use more data, messages or minutes than your allocated, you can squeak under $2,000 over the contract after taxes and fees.

Those who opt for premium AT&T data plans and advanced options such as tethering will feel it in the pocketbook. The most logical data plan for new subscribers costs $25 per month on its own.  Single subscribers who sign up for the DataPro plan, regularly buy apps and accessorize their iPhones can easily spend $2,500 to $3,000 over the next two years.

If your family will have more than one iPhone, be prepared to pay somewhere in the $5,000 for the pair of phones once your two-year contract is complete.

Those numbers might sound outlandish, but if you closely examine any iPhone owners’ wireless bill you’ll see what I mean. A few iPhone users go all out and spend literally hundreds of dollars worth of apps per month, while others never pay for a single app. You’re likely to fall somewhere in between. It’s common for iPhone owners to spend $20 or so per month on apps and games. Buying digital content like albums and movies can really add up.

It can be argued that you can incur many of the below costs on any smartphone, but Apple’s designed the iPhone 4 to make it incredibly easy to spend money. In fact, Steve Job announced earlier today that iPhone app developers have earned over $1 billion selling apps so far. Guess who paid that, plus the more than half billion dollar share that Apple kept to itself? iPhone users like me who don’t think twice about a $.99 app here or there.

Breakdown of iPhone 4 Costs

There are a lot of costs involved in picking up the new iPhone 4. New AT&T subscribers and qualifying AT&T customers will be able to buy the iPhone 4  fort $199 (16GB) or $299 (32GB), which is in line with the original pricing of the iPhone 3GS. The iPhone 3GS will still be sold, but at a reduced price of $99.

Fortunately, AT&T is allowing anyone with a contract that expires in 2010 to purchase the iPhone at the advertised $199 and $299 price points. This means AT&T customers are eligible to upgrade up to six months early.

The $199 base cost of the iPhone 4 might sound affordable, but you also need to consider AT&T’s and Apple’s various fees offering. The upfront cost of an iPhone 4 is a relatively small percentage of the total cost of ownership of the device once you consider the monthly subscription over 24 months, accessories, services, downloads and applications.

Besides the upfornt cost of the iPhone 4, you’ll need to sign a two-year agreement with AT&T and consider the following:

  • AT&T Voice Plan: AT&T’s voice plans start at $39.99 for 450 anytime minutes and range up to $119.99 per month for unlimited family plans with two lines of service. Additional family plan users can be added for $49.99 per month.
  • AT&T Data Plan: Existing AT&T subscribers who already own iPhones can continue to get to unlimited data for $30 per month. However, new subscribers will have to choose between 250MB per month for $15 or 2GB per month for $25. Additional MB/GB are available if you run over this limit and your bill can go well north of $30 if you stream a lot of music or video. Those planning to take advantage of the iPhone 4’s many HD video features should budget some extra money each month for overage fees. AT&T is offering some flexibility however and those who are usually connected to WiFi networks at home and work shouldn’t have too much trouble. You can see more details about AT&T’s new iPhone data plans here.
  • AT&T Tethering Fee: iPhone 4 owners (as well as those who upgrade their iPhone 3G and iPhone 3GS units to iOS 4) will be able to use their devices as mobile modems for their laptops. AT&T will charge $20 per month for ‘tethering’ your iPhone to your laptop. Once connected to your laptop, it’ll be much easier to blow through your 2GB cap if you’re a new subscriber. This service is optional and only a minority of iPhone 4 users are expected o sign up for it.
  • AT&T MMS: Text messages or and Multimedia Messages (SMS and MMS) are not included with AT&T’s data plan. You’ll have to add on at least $5 per month so you can send/receive up to 200 messages. Of course, AT&T offers more expensive plans for heavier users.
  • AT&T Activation Fee: Activating an iPhone on AT&T incurs a $36 activation fee.
  • Extra Tax: If you pay state on local tax on retail purchases, be prepared to pay tax on the total unsubsidized cost of your iPhone. AT&T is technically discounting the iPhone 4.0 by $200 to get to the advertised price points of $199 and $200. Many states, including California, require consumers to pay tax on the unsubsidized price, which means you could spend an extra $20 if you live in a tax-heavy state like California or New York.
  • AT&T Upgrade Fee: AT&T is offering many existing subscribers an early upgrade option that is accompanied by an $18 upgrade fee. This sounds small in the face of a $299 purchase, but these fees  add up.
  • Insurance: Thought it’s not official, AT&T is rumored to start offering iPhone insurance for $13.99 per month. Third party insurance is available at various rates. Many iPhone owners find themselves having to spend money on repairing or replacing broken iPhones.

The iPhone 3GS is simply a poor choice considering the 16GB iPhone 4 is only $100 more. While it might be tempting to snag an iPhone 3GS for just $99, keep in mind that it’s already obsolete and you’ll be stuck with it for at least two years. Features like FaceTime and apps that rely on the iPhone 4’s Gyroscope will be crippled in the iPhone 3GS.

Once you’ve purchased your iPhone 4 you’ll need to outfit it properly. The iPhone 4 is significantly thinner than the iPhone 3GS and previous models, which means many old accessories won’t work with it.

  • iPhone Cases: You shouldn’t walk out of your local AT&T or Apple store with your iPhone 4 without a protective case. Both the front and back panels of the iPhone 4 are made of glass, which is prone to damage. Apple is offering the Bumper iPhone case at launch and we expect to see many other cases in the coming weeks. You should budget at least $30 for a protective case.
  • Extended Battery: The popular Mophie Juice Pack and other external batteries of yesterday won’t fit on the new iPhone 4. Be prepared to plunk down an additional $70 to $100 for a new extended battery if you’re a heavy user. The new iPhone will have better battery life than previous models, but this likely won’t be enough for heavy iPhone users.
  • iPhone Headphones: The headphones that come with the iPhone are mediocre. Many iPhone users are enticed to buy premium headphones with features like noise cancellation. Apple and others are happy to offer iPhone-compatible headphones for $49 to $500.

Apple sells hundreds of thousands applications through the App store, music through its iTunes music store, movies for rent, iBooks to read and TV shows for purchase. If your kids get their hands on your iPhone, be prepared to spend a small fortune on iPhone games, which now have the added bonus of in-app purchases. Don’t underestimate how quickly these costs can add up.

In addition to the above items, you’ll need to subscribe to Apple’s MobileMe to take advantage of all of the iPhone 4’s features. MobileMe costs $99 per year for individuals or $149 for families of up to five. The service allows for wireless Contact and Calendar synchronization, GPS tracking of your iPhone and remote wiping of your iPhone should you ever lose it, easy media sharing and more. It’s not a necessity, but it is something you’ll need to pay for if you want to be able to do everything that Steve Jobs does during his demos.


If your already an iPhone owner and decide to upgrade you won’t be laying out much additional cash than you’re used to other than the initial purchase price. The only ‘risk’ you’re taking is that you’re locked into paying a pretty penny for your phone service for two more years. If you want out, you’ll have to pay a hefty early termination fee.

If you’re upgrading from a standard mobile phone without a data plan you’re budget is going to take a hit. Before splurging on a new iPhone, you should consider all of the costs involved, not just the $199 and $299 price tags you’ll see advertised everywhere.