Is the iPad’s 3G reverse subsidized?

ipadsizeSome discourse between the team and across the Internet about the $130 price tag on adding a 3G module to the iPad. I don’t find it that unusual. Vendors regularly charge $100+ to add a 3G module to a notebook. 3G USB or ExpressPort modems are also in this range. Tack on the Apple premium, and there you go.

However, let’s say, for the sake of argument, that Apple needs a reason to overcharge for something (other than just being Apple). What might be that reason?


What got me thinking about this was a write-up on Computerworld where they got this observation from Aaron Vronko, CEO of Rapid Repair.

“…the $130 difference [between models] is a little ridiculous. 3G chips run in the mid-single digits. For $7 you can get a really good one.”

Of course, that’s just for the chip. There are other considerations, but let’s say you can put the 3G package together for $30, where’d the other $100 go?

Vronko thinks it goes to subsidize the cost of the units without 3G. However, I suspect it actually subsidizes AT&T’s no-contract, half-price service deal on the iPad. Offering data plans for half their usual price gives up a big chunk of change. $100 per unit doesn’t make up for that loss, but they’d get it up front. By contrast, if they charged their usual price and subsidized the device, they’d likely pay out $200 up front.


Basically, instead of AT&T paying out a subsidy up front and making it up over the course of the contract, they get paid a subsidy up front and don’t worry about making up the difference later. Reverse subsidization.


I have no facts to back that up, but I think the logic works. Certainly, I find it more plausible that AT&T got paid to cut the price of their data plan rather than doing so out of “friendship”.