iPhone 4: Risks and Rewards of an AT&T Upgrade

Last Updated Jun 23, 2010 10:41 AM EDT

Planning to buy the iPhone 4? You've got plenty of company. The record response to the first few hours of pre-orders so overwhelmed AT&T that they shut the pre-order system down only hours after its launch last Tuesday.

Now you're hours away from being able to pick up that shiny new iPhone 4 from your local AT&T store. Before you do (maybe while you stand in line), let's take a look at what you'll be paying and getting, as well as the risk of signing a long-term contract in a world where the coolest new thing may be only months away.

First you should know that the cost of your iPhone is going to depend on whether you're a new AT&T customer or an existing one. If you're an existing customer, the cost of your phone is going to depend on whether or not you're eligible for an upgrade.

The good news for those upgrading is that AT&T is making it really easy to see what you qualify for with a handy tool on the company's web site. You click on "upgrade options," plug in your phone number and the site gives you the status of each line linked to your account. The bad news: If you were trying to do that last week, the moment you said you wanted the iPhone 4, the site sent you off to an AT&T retail store for pricing.

So, what did my helpful AT&T in-store representative say about the pricing? If you're eligible for an upgrade (or a new customer), the cost of the phone would be $199 for the 16 gigabyte version or $299 for the 32 gigabyte phone.

Do you need the 32 gigabytes? According to the AT&T salesman, you only need the extra memory if you're big on video. The $199 phone will handle something in the neighborhood of 500 applications and 4,000 songs. (There's another nifty tool, called the "data calculator" on the AT&T web site to estimate how much iPhone you need based on your usage.)

What if you're not upgrade-eligible? The new iPhone would cost $399 for the 16GB version or $499 for the 32GB. And, of course, with both of these prices, you've got to sign a two-year service contract with AT&T.

Not sure you want to sign away two years of phone choices? Retail pricing for the phones is reportedly $599 and $699, but my AT&T salesman said buying an iPhone without an AT&T contract was not an option.

Mark Lowenstein, managing director of Mobile Ecosystems in Boston, says he doesn't expect another provider to break into the iPhone market this year. Even though there are rumors that other providers such as Verizon or T. Mobile may soon be iPhone-compatible, AT&T is the only game in town for anyone who actually wants to use their cell phone during the next few months. His advice, if you want the iPhone and you want it now: "Suck it up and sign the contract."

If you want to cancel the deal before the required 24 months are up, you'll pay a $325 cancellation fee if you nix the deal immediately. But AT&T will reduce the fee by $10 for each full month of the agreement that's completed.

If another phone provider signs a deal with Apple at this time next year, the fee to get out of your AT&T contract would be $205. Even if you're 21 months into the deal, your cancellation fee still would be $115.

But don't be too discouraged, Lowenstein said. Whatever phone company next enters the iPhone market is likely to be anxious to lure customers away from AT&T, so they may just make the deal worth your while, he said. "You don't know what they might do, but it's possible that they'll make the cancellation fee less painful."

Here's another little wrinkle to consider: When you get an iPhone, you agree to get all of your applications from the Apple store. And Apple's got some terms and conditions of its own. The company, for example, reserves the right to stop supporting any application at any time and it sometimes restricts how often you can use the stuff you've bought.

If the makers of the application you paid for violate some term of their Apple deal, Steve Jobs can stop supporting the application on your device. That's part of the lengthy Apple hardware and software terms and conditions that nobody reads (because it takes hours and a law degree to understand) but everybody "accepts" because you have to if you want Apple products.

In the meantime, "smart" phones like the iPhone 4 are becoming better and cheaper every day. If you're not completely sold on Apple's iPhone, the new Droid Incredible is also receiving rave reviews.

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