AT&T (T): A Dangerous Price Plan For The Apple (AAPL) iPhone

AT&T (T) announced its pricing plan for the Apple (AAPL) iPhone today. The plan is extremely confusing. That may make it harder to sell to the average customer, both for those who currently use the AT&T’s wireless service and those it might get from competitors like Sprint (S).

The Apple 3G iPhone will be available for $199 for the 8GB model and $299 for the 16GB model. These prices require two-year contracts will be available to some customers. Those who sign up before the phone comes out on July 11 and some current AT&T subscribers will fall into that bucket.

Customers who are not eligible will pay $399 for the 8GB model or $499 for the 16GB model. Or, someone who does not want to do business with AT&T can walk in off the street and buy and iPhone without a service contract for as much as $699.

AT&T is taking a substantial and dangerous bet that the iPhone will sell in unusually high volumes. According to MarketWatch, "The heavier subsidies could cost AT&T up to $1 billion alone in 2008." Assuming the average iPhone two year service plan brings AT&T less than $1,000 over its life, the return would have to take two or three years.

With Sprint (S) in the market with its own iPhone clone and RIM (RIMM) becoming more aggressive with new versions of its Blackberry aimed at consumers, AT&T is not a lock to hit the super-high volume levels it will need to make the 3G iPhone launch a success.

At least Apple will make a lot of money.

Douglas A. McIntyre