Addressing one of the biggest complaints about the iPhone - the high price tag - Apple Chief Executive Steve Jobs on Monday celebrated the device's one-year birthday a few weeks early by unveiling a cheaper and faster version.
In announcing the cheaper 8-gigabyte iPhone, Jobs acknowledged that its biggest hurdle in becoming a mainstream product has been the high price. The new iPhone will be available July 11 in the United States and 21 other countries for as low as $199, down from $399 for the current version and $599 when it was first released. A 16 GB iPhone will sell for $100 more. Analysts say the device could one day become as popular as Apple's iPod digital music player.
As expected, Jobs also said the phone would use AT&T's 3G, or "third-generation," network, an announcement that, as is typical at these events, was greeted with the kind of enthusiasm found at rock concerts.
Jobs also drew wild cheers from the crowd at Apple's annual Worldwide Developers Conference in San Francisco when he announced the new version will come with a global positioning system.
By year's end, the iPhone will be sold in 70 countries, Jobs said.
"It's not just for the alpha geeks. It's not just for the truly committed. It's for normal people," company Vice President Greg Joswiak said in an interview.
With the price cut and Apple's dramatic global market expansion, the company should have little problem meeting its goal of selling 10 million iPhones, some analysts said.
While the faster version and new applications being written for the iPhone are important, "they are all evolutionary," said Piper Jaffray analyst Gene Munster. "The big game changer is the price. This will make their estimates for calendar '08 look like a layup."
The iPhone price slash is part of a new deal between Apple and AT&T, the iPhone's exclusive carrier in the United States. AT&T has agreed to subsidize the cost of the phone. Under the agreement, though, AT&T will no longer give Apple a share of its revenue from data-usage plans. The phone company said it expects the gadget's reduced price to fuel sales that require a two-year service contract and generate increased revenue from data-usage plans, resulting in increased earnings per share by 2010.
In an apparent effort to prevent users from "unlocking" the device so they can use it with other carriers, AT&T said the iPhone can now be purchased only with an activated service plan. Previously, consumers could buy it in stores or online and activate it online later.
The new iPhone is aimed at alleviating another complaint users have made about the device: Its data transmission is too slow in accessing the Web. Jobs said the 3G iPhone will be twice as fast as the current version.
"It's amazingly zippy," Jobs said.
He also said the upgraded device, which he described as "thinner at the edges," will have a battery that is maximized for the 3G network. Jobs revealed a number of comparisons showing how Apple will be able to maximize battery power despite the strain from the faster network. Jobs said 3G talk time will be an industry-leading standard of five hours. Still, that's only half the talk time of the current iPhone model. He also said the 3G phone would get five to six hours of Web browsing, seven hours of video and 24 hours for audio usage.
The conference kicked off with a glimpse of the emerging iPhone ecosystem of applications being created by independent developers. About 250,000 software writers have downloaded the tools Apple offered in March that will allow them to create new features for the device. A range of new applications, from sophisticated games to social mapping services and almost-real-time updates of major league baseball games, have been created for the iPhone.
The applications will be available on Apple's soon-to-launch App Store, which is expected to be ready on or around July 11 and will resemble the Cupertino company's iTunes online music and video store. The store will be included on every new iPhone and on older iPhone models once users download the soon-to-be-released iPhone 2.0 software update, which will also include the ability to sync the device with Microsoft Exchange.
Apple expects there to be "hundreds" of applications initially offered through its App Store, and that will only grow, Joswiak said.
Tim Bajarin, president of technology research firm Creative Strategies, said the iPhone is increasingly defying a simple category.
"They are redefining the concept of a handset," he said. "The iPhone is a personal mobile computer. That is really what it is."