Apple relents on iPhones subsidy

The new version of the Apple iPhone is set to be sold at significantly lower prices than the existing one, in a tacit acknowledgement by the US technology company that its previous sales strategy was not sustainable.

Apple has bowed to pressure from mobile phone operators and agreed they can subsidise the latest iPhone, expected to be unveiled by Steve Jobs, Apple’s chief executive, on Monday.

The subsidy arrangements should increase Apple’s chances of hitting its target of selling 10m iPhones during 2008.

The target has been made challenging by the global downturn. Apple has reported selling 1.7m iPhones so far this year.

Analysts said AT&T, the US mobile operator selling the iPhone, could provide a $200 subsidy on the handset, enabling it to go on sale to consumers for $200 or less. The first version costs US consumers $399 because there is no subsidy.

Apple has accepted that the new iPhone should be subsidised in the US and western Europe by the mobile operators who sell it to consumers, according to people familiar with the matter.

The operators are willing to bear the subsidy costs because the iPhone provides them with revenue opportunities such as advertising.

Apple has also forgone a portion of the monthly revenue paid to the operators by iPhone users, said people close to the situation.

Such arrangements have been in place between Apple and AT&T, O2 of the UK, France Telecom and Deutsche Telekom.

All the companies declined to comment.

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