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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”.



  1. Gary

    01/28/2010 at 3:17 pm

    Its too bad you can’t add 3G later. I use a Mifi, and shot down the thought of 3G immediately – how dare they charge $130 just for the “ability”. The more I think about it, I don’t know… as small as the Mifi is, I can see forgetting it. And, certainly less integrated, and less runtime. Then again, it’s one charge for wifi for all my devices. Why am I even pondering this again?

  2. Riles

    01/28/2010 at 4:06 pm

    I was having this exact conversation with a coworker this morning. I think considering where people are going to make the most use of this device it is a good bet on the part of ATT that they are not going to see an unmanageable amount of traffic from the iPads.

  3. Rijc99

    01/28/2010 at 4:56 pm

    An iPad with 3G is a giant iPhone without the dialer. Why should they charge more for the data plan above what they normally charge for smartphone?

    It’s actually priced as usual.

  4. Virtuous

    01/28/2010 at 10:47 pm

    Why do AT&T and Verizon charge $60/month to use a 3G USB or PC Card modem? AT&T can’t make any money off of voice plans for the iPad.

  5. Riles

    01/29/2010 at 9:28 am

    Tell that to the netbook users on ATT that are currently paying $60 a month and are locked into two year contracts.

  6. Riles

    01/29/2010 at 9:31 am

    Reply didn’t seem to work there, that was @Rijc99.

  7. Virtuous

    01/29/2010 at 7:51 pm

    Apple’s deal with AT&T is brilliant. Over the course of a 2-year contract someone with an iPad can save $720 over another person with a subsidized 3G netbook. That’s a savings of $30/month when compared to a $60/month 3G data plan.

  8. cobalt

    01/31/2010 at 6:05 am

    I agree, and I don’t know why more people aren’t chatting up the 3G plan.

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