The iPhone 3G Unveiled

Apple's new mobile device features improvements galore, not the least of which is a more attractive price tag that will likely ignite demand

Apple

by Arik Hesseldahl

Almost a year after upending the mobile-phone world with its first wireless handset, the iPhone, Apple unveiled a souped-up second version of the device, the iPhone 3G.

Introduced by Apple (AAPL) CEO Steve Jobs in a June 9 keynote address in San Francisco, the iPhone 3G will sell for $199 for an 8GB version and $299 for a 16GB version. The new prices represent a departure from a year ago when the first devices sold for $599 on the upper end. The iPhone 3G will be available in 22 countries beginning July 11, and will eventually be sold in 70 countries in all.

The new phone derives its name from the faster Internet downloads available on advanced, or third-generation (3G), wireless networks. Jobs told the audience the new iPhone downloads Web pages as much as 36% faster than comparable phones from Nokia (NOK) and Palm (PALM). The new phone also sports a feature that lets users know their location using GPS satellites. Phones that run GPS technology are able to access an array of location-aware applications, including mapping within address books. Other improvements over the original device include improved audio quality on phone calls.

Juicing Demand

Improvements to the first version of the iPhone—the lower price in particular—will likely generate greater demand for one of Apple's most successful products to date. "If anyone needed proof that Apple was ready, willing, and able to go after lots of mobile-phone users, they got it today," says Gartner (IT) analyst Mike McGuire. "Apple is showing itself to be really serious about the phone market." Apple has sold 6 million units since the iPhone was introduced at the end of June, 2007. "More people desired to buy it, but they couldn't afford it," Apple Chief Operating Officer Tim Cook says.

Demand for the iPhone also stands to benefit the wireless carriers on whose networks the device runs—although Cook says the lower price reflects a subsidy that will be absorbed by the service providers. The official iPhone provider in the U.S. is AT&T (T). "The launch of 3G iPhone will be another opportunity for [Apple's] exclusive providers to boost [revenue per user] and market share gains, continuing what 2G iPhone started," UBS (UBS) analyst John Hodulik wrote in a research report.

Apple's stock dropped during the keynote, falling as much as $7.25, or nearly 4%, by 2 p.m. Eastern time, though it later recouped losses. Apple shares had slipped $4.03, or 2.2%, to 181.61 by the close of trading.

Apple also added features designed to make this version of the iPhone more attractive to business users. These include the ability to read documents from Microsoft Office (MSFT), including documents in Word, spreadsheets in Excel, and PowerPoint presentations. "We sort of checked the boxes on everything the enterprise wanted," Cook says.

Several New Features

Another new feature is a service called MobileMe, an expansion of Apple's existing .Mac Web service, which offers hosted e-mail, online storage, and other services for users of Apple's Macintosh computers. During the presentation, Apple Senior Vice-President Phil Schiller described the service as "Exchange for the rest of us," referring to Microsoft's widely used corporate e-mail, calendar, and contact-list tools.