Today’s Bloomberg article was about as interesting as they get in terms of what’s next for iPhone.  With $600 phones, Apple is priced outside of what most Americans will pay for a mobile device.  Obviously the carriers subsidize phones but then you end up paying way more than you should per month.  What does a $200 iPhone on a ‘pay as you go’ plan look like?

If you want to look at what a $200 iPhone would look like, I think the best current example is the LG Optimus V on Virgin Mobile, a Sprint Mobile Virtual Network Operator (MVNO).  It is a 3.2 inch screen Android device with a speedy 600MHz ARM processor and 512Mb of RAM.  The resolution of the screen is the same as the iPhone 3GS even though it is .3 inch smaller.  This is important because you want to have legacy iPhone app pixel compatibility.  It has Bluetooth 2.1, GPS, a 3 Megapixel camera and just about everything the iPhone 3GS had…

And it costs $149 off contract(!). Apple could make a better looking version of this hardware for $200 and still nab their nearly 40% margins.

I did a review of this phone for my day job. It is great (for the price) and can even be hacked easily to be a free hotspot (see video at the end).  Actually, hacked is a strong word.  You just download an app from the Android market.  What does a pre-paid phone buy you in terms data costs?  Without a subsidy payment, Vigin can offer rates like this:

Virgin plans start out at $25/month (no taxes either) for unlimited data, texts and 300 minutes of anytime calling.  If you don’t talk on the phone a lot like me (or use VoIP), this is a dream setup.  Virgin’s Network is just Sprint’s 3G and it behaves just as well as a Sprint phone…which is to say very well.  There is no limit to data.  You can technically download at full capacity all month long.  I’ve never had a problem with Virgin that I wouldn’t have on Sprint.  Coverage in NYC and surrounding area is as good or better than AT&T and Verizon.

Here is your life of phone costs:

$150 phone+ $25/month for 2 years= $750 for Virgin Optimus V.  1 year = $450

$50 phone + $75/month for 2 years= $1850 for iPhone 3GS.

As you can see, it isn’t even close.  Apple can’t compete right now for people who want to spend under $500/year for their phones and plan.  How’s this phone selling?  It is sold out at Virgin (update:back in stock), Radio Shack and Best Buy.

If Apple wants to get into this game, they have to a). build a less expensive phone and b.) Offer their phone on a good pay as you go carrier like Virgin.

Or create their own MVNO.

There is another component of this.  As we reported last year, Apple may be looking into becoming an MVNO and just buying bulk data from the carriers and letting the iOS devices pick the best data out there.  They may use a Gemalto chip that flashes the SIM card for different carriers.  It has the European carriers soiling themselves.  Apple has a patent on this process from  2006 (Tony Fadell!) so they really want to do this.

But that seems to be a little ways off.  In the mean time, if you have a worldphone (like the next generation of iPhones) and a Google Voice account you can hop around pretty easily, not that you’d need to stray too far from Virgin.

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