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Want an iPhone but no contract? It will cost $400 extra

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Bloomberg News / July 2, 2008

DALLAS - AT&T Inc., seeking a wider base of customers for Apple Inc.'s new iPhone, will offer the device without a service contract and instead make users who don't want a two-year commitment pay an additional $400 and get a month-to-month plan.

That gives the biggest US mobile-phone carrier a way to ensure that only people who sign longer contracts will get discounts on the new device, which runs on a speedier third-generation wireless network. The phone will be available July 11 for $199 with an AT&T contract.

AT&T plans to sacrifice 10 to 12 cents a share in earnings this year and next to subsidize the cost of the phone, making it available for half the price of the older version. Apple plans to sell 10 million iPhones worldwide in 2008.

AT&T and Apple revised sales plans after some customers used software tricks to make the previous version of the device run on other networks.

An unlocked iPhone can run on T-Mobile USA Inc.'s network in the United States and on international networks that use the global system for mobile communications. The phone won't work on the networks of Verizon Wireless and Sprint Nextel Corp. because they use incompatible technology.

Unlike with the older model, customers won't be able to take the new iPhone home from the store without connecting it to AT&T's network, so even buyers of the no-contract phone will have to pay for some AT&T service. In the United States, the device will only be available in AT&T and Apple stores, and not online as before. Service plans begin at $69.99 a month.

The iPhone will be available at the no-contract price sometime after July 11, AT&T said. The $199 price is available to new customers, people who purchased the previous iPhone model, and current subscribers who have neared the end of their contracts, if they sign up for two more years of service.

A version of the phone with additional storage will cost $299 with a contract and $699 without one. AT&T subscribers who already are under a contract and aren't yet eligible for the discount can buy the iPhone for $399 or $499.

The new price details indicate Apple is getting about $550 for each iPhone AT&T subsidizes, up from an earlier estimate of $350, said Ben Reitzes, a Lehman Brothers Holdings Inc. analyst. The companies haven't disclosed how much AT&T is paying Apple.

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