The iPhone 4, the latest and hottest gadget to hit the markets, carries an astonishingly low up-front price tag. On AT&T’s website or in its stores, bright orange letters blare out the bargain – only $199 for the pinnacle of Steve Jobs’ engineering and design.
But as with all things, there’s no free lunch – and there are no real free phones, either. In the tech industry, products like the $299 Xbox 360 and $199 iPhone 4 are called loss-leaders. The company will lose money up front on the hardware, then make it all back on the software and services.
With an iPhone, you must sign up for a two-year deal to get the $199 price. The cheapest data package, at $15/month, is far too small to handle typical iPhone traffic, so you have to upgrade to at least $25/month, then add in a minimum of $40/month in minutes and $5/month in texts, for a total of $70/month – before taxes and fees. Over a 24-month period, you will shell out $720 extra on top of the most basic phone minutes plan for the privilege of using your $199 phone.
T-Mobile takes a different approach. Two-year contract plans – the ones which net you free or discount phones – always cost $10/month more than the regular ones. That’s at least $240 for the life of the contract.
Either way, watch out for hidden costs – and budget accordingly. Once in the contract, it costs a lot to get out.