iphone is the talk of the town, there is no question about it. While everybody is  busy upgrading their devices, the Mobile Phone killer application for me is still an Alarm Clock. However I should recognize that some people have a different view and many are interested in Iphones.In the past, the Apple income from iPhones was based on a revenue share business model: getting a percentage of the revenues originated from the iPhones traffic.
On October 2007, the New York Times  reported about the revenue share deal between Apple and AT&T. On August 2007, the Financial Times reported about a similar deal with T-Mobile of Germany, Orange of France and O2 of UK.  Time passed and somewhere on the way the Apple Business model changed. Apple partially abandoned the revenue-sharing model  (see 1, 2, 3)  and passed  to a more traditional model where iPhones were sold to Service Provider in full price, and the Service Providers subsidized iPhones to their end customers.

Saul Hansell, the editor of the New York Times Bits blog, says in his blog that “Subsidies of $200 to $300 per advanced handset are common in the industry”. O2 UK prices are a good source to learn about the subsidy. O2 offers the following plan: get a free 8GB iPhone just commit to a 18 month plan for £45 per month, the same Iphone is offered at £342.50 to O2 prepaid customers at apple UK web store.
Therefore since the Service Providers take a substantial risk per handset, they have to ensure their margins; the common way of getting it is to commit their customers to 1- or 2-year plan. It can be risky; the operator that gives a significant subsidy per Iphone might lose money in case the buyer of the handset manages to avoid the long-term commitment. It’s even riskier if buying of the subsidized handset is separated from the activation and commitment to the plan. Today the AT&T site let you buy your subsidized Iphone at a third party retail shop, e.g., Walmart, and then activate it via the web, selecting and committing to the plan only at the activation time. Of course, this approach relies on the possibility to enforce the activation of the subsidized handset only at the subsidizer’s network, and only after getting the customer’s commitment to a long-term plan. However the risk is high and I can easily imagine 3 scaring scenarios:

1. The customer fails the credit check, he cannot commit to the long-term post paid plan. In the past such customers were given two options: to give a deposit or prepay. The second option increased the risk of losing subsidy by the Service Providers. It seems that today this loophole is blocked by AT&T.

2. The Service providers for sure lose their subsidies if a customer decides to deliberately beat the system: e.g., to use the new iPhone with an old Sim card engaged in a cheaper plan or even worse, to buy an iPhone and use it with a competitor company. It is true that both options require some hacking that might be illegal (I am not sure), but more and more sites are reporting on the ways how to do it (for obvious reasons, no links here).

3. Someone (a dealer, an employee of the dealer, a customer, etc.) starts to buy large volumes of subsidizes iPhones, unlocks them and sells the unlocked Iphones abroad at reduced prices, causing the service provider significant losses.

I hope that all the Service Providers that are or will adopt the marketing strategy of separating the sale of the subsidize handset from the activation and the commitment to the plan processes, are aware of these risks, and take the necessary measures to monitor and mitigate them.