iPad: Why so much more for the Wifi + 3G model?

Apple introduced the iPad a few days ago, and since then I have been trying to determine which model I will end up buying. I keep attempting to justify my need to purchase the Wifi + 3G Model. The cost difference between the Wifi model and Wifi + 3G is $130. $130 seems like a big jump in price so I began pondering… ‘Why so much for a lonely 3G chipset’?

According to iSuppli, the 3G baseband chipset for Cellular communications for the iPhone 3GS was close to $13.00. Now, let’s say it’s not an Arm7Core chipset for the cellular data, it’s a newer chipset. So, we’ll assume an increase to $15.00 to be generous. That’s $115 more for the 3G chipset models. Something doesn’t add up with this equation.

The data packages on the iPad are $15 a month for 250MBs of data and $30 a month for “Unlimited.” Wait, I currently pay $30 for unlimited data along with an outrageously high voice plan on my iPhone now. Also, if I were to get a 3G USB data plan it would be $60. How is AT&T going to make money? Simply put: Subsidy.

I believe as though part of Apple’s strategy and leverage with the iPad data was gained through giving AT&T a cut of the iPad sales in exchange for the reduction in the data package cost. If we take Apple’s $15 cost for part, standard 35% margin that comes to $20.25. So we take the $20 (we will round down to $20 for simplicity sake) that Apple is making off of each iPad Wifi + 3G model, that’s leaving around $110 left. That amount, in my best guess, is what AT&T will be receiving for each iPad device sold with 3G data. That $110 goes to immediately subsidize the reduced price of the AT&T data.

If you figure Apple sells 500,000 iPads with 3G, that immediately adds $55 million to AT&T’s coffers. That’s not exactly chump change. It is some serious dough. Just think of the amount of money AT&T would stand to make if Apple sells 2 million at that rate ($220 million).

Now, I can’t fault AT&T nor Apple for making this deal. I’m all for reduced pricing on data plans. As time has gone on, the dependency on voice has greatly been diminished while the consumptive rate for data has increased. Purchasing movies, games and streaming video will all most likely consume even more data than on your iPhone.

Photo Credit: isfullofcrap