Appeal of iPhone is enduring

Many early iPhone buyers are enthusiastic about the next version. "I will be the first in line for the new one," said one. "I love this phone. I love the Macintosh. I love Steve Jobs." (Justin Sullivan/Getty Images)

SAN FRANCISCO - Bradley Wilson was one of thousands who lined up to buy the iPhone the day it went on sale in June 2007. He's ready to camp out again next month when Apple Inc. starts selling a faster, cheaper model.

A year after entering the mobile-phone market, Apple chief executive Steve Jobs aims to win customers with a $199 handset as competitors including Samsung Electronics Co. begin touting less-expensive "iPhone killers." Early users, some of whom paid as much as $599 for the Web-surfing device, said they will be among the first to buy.

"I'm stoked about the price drop and understand Apple's desire to get the iPhone into as many hands as possible," said Wilson of Alexandria, Va., a staffer at National Geographic. He says he may give his old model to the family member who begs the most. "I would pay the price I paid last year again if I had to do it over - it's been worth every penny."

After the touch-screen phone debuted a year ago today, Apple sold more than 6 million before running out in May. Devotees like Wilson and new converts may help Jobs sell 10 million of the devices this year, giving Apple 1 percent of the global market. Industry leader Nokia Oyj sold 435.5 million phones in 2007, Gartner Inc. said.

The iPhone 3G, which runs on speedier third-generation wireless networks, will include a global positioning system, download Internet content twice as fast as the old model, and support business e-mail systems when it goes on sale July 11.

"I would wager that half the installed base will upgrade," said Glenn Edens, a computer analyst in Woodside, Calif., who bought one of the most expensive iPhone models a year ago. "It's a pretty low-cost update for GPS and 3G."

But not every iPhone owner is ready to trade up. Joe Ridge, a computer technician at the University of Maryland, is leery of Apple's pricing tactics. Two months after the iPhone's debut, Apple sliced the top model to $399 from $599 and discontinued a $499 version.

"Just based on what I've gotten out of it and hope to continue to get out of it, it is worth the price I paid," Ridge said. Still, he "might be a bit more wary about buying a brand-new class of product from Apple in the future."

Jobs, 53, wants to make the iPhone Apple's third major business, alongside the Macintosh computer and iPod music player. Today, the Mac and iPod account for 71 percent of sales.

The iPhone is the number two smartphone in the United States, behind the BlackBerry from Research In Motion Ltd., according to researcher IDC. Smartphones offer Internet, e-mail, and computer functions.

To reach the 10 million-phone mark, Jobs had to rethink how Apple makes money from the device.

Apple is no longer tying distribution deals to a cut of fees for mobile phone service. Instead, analysts expect the service providers to buy phones from Apple for $350 to $700 apiece. The carriers can then sell the 3G phone at any price up to $199 for the 8-gigabyte version.

Service providers including AT&T Inc. and Deutsche Telekom AG will sell the phone for less than they pay for it because they expect to make up the discounts with service fees. Most of the details haven't been disclosed and vary by carrier.

Piper Jaffray & Co.'s Gene Munster says AT&T, the exclusive US provider of the iPhone, will subsidize the iPhone by $267. AT&T will pay Apple $466 a phone and resell it for $199. To help make up the difference, AT&T raised the price of its data plan by $10 a month, bringing the total for voice and Internet service to $70 monthly. Over two years under AT&T's required contract, that will be $1,680.

For Apple, Jobs is betting increased shipments will offset lost service fees, Munster said. He and other analysts had put Apple's cut of the fees at $10 to $20 a user each month.

"I will be the first in line for the new one," said Carol Hannan, a freelance art director who bought her iPhone in New York a year ago. "I love this phone. I love the Macintosh. I love Steve Jobs. They do it right."