Is Love for iPhone 3G S Fading Fast?

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Is the love for the new Apple (NASDAQ: AAPL) iPhone 3G S being soured by AT&T’s inadequate support for key features at launch and by pricey service fees?

That’s the buzz today after the new smartphone made its debut with a host of new features and an upgraded operating system to support them.

Apple’s iPhone 3G S, announced yesterday at the Worldwide Developer Conference, boasts an upgraded operating system, faster data down-link speeds, a better camera that can upload video, a digital compass, MMS service, the long-awaited “cut and paste” feature, tethering, double the storage of the last model and voice command.

At issue, though, is the cost for consumers who will be locked into a two-year service plan with the exclusive carrier, AT&T (NYSE: T), to take advantage of all the new features, as well as the carrier’s misstep in not supporting MMS or tethering at launch.

While 22 international carriers will officially offer iPhone tethering, and 29 carriers will immediately support MMS, AT&T customers awaiting iPhone 3.0 won’t be able to take advantage of the feature set of the upgraded iPhone operating system when the new handset goes on sale June 19.

“We will offer MMS support at the end of the summer, and we will also offer a tethering plan, but we have not specified a date or price at this time, but we’ve always charged for tethering because it uses our networks,” Mark Siegel, AT&T spokesman, told InternetNews.com.

Meanwhile, industry watchers are also criticizing the carrier for piling on fees for extra services linked to the new iPhone.

The premise is that iPhone fans will pay $200 to $300 to buy the iPhone 3G S. Then once tethering is supported, which means users can share an Internet connection with a Mac or a PC, either via a USB connection or wirelessly using Bluetooth, critics say AT&T will likely charge another $20 to $30. That’s on top of the usual $20 or so extra subscribers pay above the two-year plan cost for other data services.

After that, if iPhone owners want to take advantage of MobileMe, Apple’s multimedia syncing service that allows you to upload video and pictures to your own Internet sites, they’ll pay another $100. MobileMe would also let users take advantage of the new phone-finding feature as well as the remote wipe functionality that nukes any sensitive data.

While subscribers pay Apple directly for MobileMe, it also puts pressure on AT&T financially since they’re cut out of the deal, Hal Steger, vice president of marketing at mobile cloud sync company Funmabol, told InternetNews.com.

“Users pay Apple directly,” said Steger. “MobileMe has almost nothing to do with AT&T since it’s mostly a Web-based service; i.e., you just go to [the site] and sign up, bypassing the carrier. It only uses MobileMe as a pipe to carry data between the user’s iPhone and the MobileMe server and portal.

“That’s exactly why the carriers should be very concerned about MobileMe and other mobile cloud sync solutions,” Steger added. “It bypasses them, so they need their own version to compete and not become a dumb pipe.”

Still, some analysts aren’t sure the service plan and MobileMe costs will be a deal-breaker for the follow-up to the iconic iPhone 3G given the loyalty of Apple fans, and they attribute the fees to the cost of doing business.

“Price with AT&T certainly is an issue,” said IDG mobile analyst William Stofega. “During a recession, will consumers be able to rationalize the cost? On the other hand, AT&T has to make its money back. They’re subsidizing the phone, so they’re the ones actually buying it, so they have to figure out a way to get paid back, to earn money to upgrade the networks and so on.”

Seigel was not hesitant in citing the retail value for the iPhone models.

“These are subsidized devices,” he said. The 32GB 3G S costs $699, “and we’re glad to offer it if you don’t want to commit for two years. But we feel our service pricing, which is exactly the same as for the 3G, there’s no change, is fair. Consumers get a great device at a great price and in exchange we get commitment to a two-year contract.”

Enough to upgrade?

Still, industry watchers weren’t blown away by the iPhone 3G S feature set, but they also believe it has enough value to keep rivals Palm (NASDAQ: PALM) and Research In Motion (NASDAQ: RIMM) from being huge threats to the bottom line.

“A lot of what I see addressees shortcomings in the 3G that should have been there — cut and paste, MMS — but beyond that, it’s really all ‘nice to have’ stuff,” said IDC analyst Ramon Llamas. “I think it will be more so about the overall experience and a lot of that will depend on the speed of the network.”

Stofega said there isn’t a clear reason to upgrade for the average consumer who may not need more storage or want to use video. “It’s going to be interesting, because while I think a lot of people waited and there is the $99 option … frankly, if it’s all about video, we’ve talked to carriers and it isn’t really taking off on a big scale yet despite small increases in usage.”

On the smartphone competition front, Llamas thinks there’s enough differentiation for the big three in the mobile sector to co-exist while still making money. “Apple established itself as a multimedia powerhouse, while RIM solidified its position as best in mobile e-mail and enterprise, so the question is what’s left for the Pre? I think there’s still a lot of room beyond multimedia and mobile e-mail. I think the Pre is designed for communication and connectivity in a streamlined, efficient way, and it will do fine.”

Stofega agrees. “The Pre won’t ever be a true iPhone killer, but it’s a great alternative, they did a great job,” he said. “It’s going to be an interesting summer.”

For enterprises, analysts agree that Apple clearly isn’t pushing for business use, but may welcome it if it comes.

IDC mobile enterprise analyst Sean Ryan said the 3G S still lacks robust security for information stored on the device despite the remote wipe feature, and that software is what will drive businesses to adopt the new iPhone. “Enterprise use will revolve more around the SDK and opening up APIs to business,” Ryan told InternetNews.com.

Indeed, Stofega said RIM is being the aggressor and nibbling away core market share.

“There’s still a long way to go in terms of enterprise,” Stofega said. “I think in the big picture, you need a keyboard for enterprise or you have to provide the option of both touch and keyboard. There’s still issues with security, but those can be solved. If anything, RIM is doing more in baiting Apple’s beloved consumer market than Apple is doing to get the enterprise.”

Article courtesy of InternetNews.com.