Why AT&T might subsidize the iPhone

AT&T has a real problem. People are buying iPhones and not signing up for service. Apple cares a little bit (they get a percentage of the monthly service) but they really make the profit on selling the phones. So, I will throw out my theory about the rumored price break on the 3G iPhone. (Please note that this is a theory only.)

The customer would purchase a new phone either from Apple or AT&T as usual. AT&T will offer a $200 activation credit on the iPhone with a new 2-year contract. AT&T will only subsidize the cost of the phone if they can get the activation. This would be a way to counter the number of phones that were purchased and never activated with AT&T (probably somewhere unlocked in Asia).

And while I haven’t heard about this part at all, I can imagine that this $200 activation credit would be for users who activate with one of the newer flat rate unlimited plans. AT&T is not going to give Apple an extra $200 per handset without an activation at the end of the tunnel.

For me, this is a very logical and simple solution that gets AT&T more subscribers and basically changes nothing for Apple’s profits.