Apple, AT&T and the iPhone's risky new plan

The subsidy, which replaces another arrangement that gave Apple a portion of iPhone service revenue, will dilute earnings through 2009, AT&T says.

On the plus side for consumers, the iPhone is now extremely affordable. At $199, the 3G iPhone costs about the same as a high-end cell phone. AT&T says it plans to offer an unsubsidized iPhone later. Cost: $599 to $699, depending on memory, putting it well beyond the reach of average wireless users.

It remains to be seen if AT&T's gamble will pay off. One thing is clear: Thanks to the iPhone, the smartphone game has changed dramatically. And so have consumer perceptions of the mobile Web, a netherworld that seemed downright hostile before the iPhone showed up.

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