Last Updated: June 10, 2008: 9:37 AM EDT
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Apple announces faster, cheaper iPhone

CEO Steve Jobs unveils the much-anticipated 3G iPhone; cuts the iPhone price to $200; takes aim at the BlackBerry.

By Scott Moritz, writer

NEW YORK (Fortune) -- Apple announced on Monday a much faster iPhone that's half the price of the current model.

The news is expected to address one of the biggest complaints about the hugely popular iPhone: That its Internet browsing is too slow. CEO Steve Jobs said the new iPhone, which is based on 3G technology, is 36% faster than top rival Nokia's N95 smartphone.

As Fortune.com first reported, the new 8-gigabyte iPhone will cost $199 and a 16-gigabyte version will cost $299. Jobs says the new iPhone will be available worldwide starting July 11. It will allow up to six hours of Web browsing and five hours of talk time.

Jobs announced the 3G iPhone, which had been rumored for months, at the company's annual World Wide Developers conference in San Francisco.

Apple shares fell 4% after the iPhone announcement, as some investors were left wanting more from the gadget maker. The stock had been up 55% in the past three months on heightened expectations for a radically improved iPhone and the possibility of other product launches.

While the price cut was good news for consumers, U.S. iPhone partner AT&T (T, Fortune 500) said it would feel the pinch of having to lay out a subsidy for the new phone. In a press release late Monday, AT&T said the iPhone costs will cut adjusted earnings by about 11 cents this year and next.

To help offset the expected revenue shortfall, AT&T raised the price of its unlimited iPhone data plan by $10 a month. Also, as part of its new business model, Apple will no longer pocket a share of customer fees. However, AT&T will continue to pay Apple as much as 24% of monthly revenue from original iPhone users until their contracts expire.

During the show, Jobs also introduced a slew of new applications for the iPhone, including a wireless system that automatically forwards e-mail to other devices, a friend-finding service called Loopt and mobile blogging software from TypePad.

Other new applications include a service from MLB.com that provides a live scoreboard of major league games, and music-making software, called Cow Terry, for creating songs on the phone.

The new iPhone applications are aimed at boosting revenue from data services. Wireless companies increasingly are looking to these services to offset slowing growth in mobile phone sales. Apple, for instance, will charge $99 a year for its new MobileMe service, which sends e-mail, contact and calendar updates to users' devices.

The new services drew plenty of "oohs" and "aahs" from the record 5,200 attendees at Apple's developers conference. But the main attraction was the 3G iPhone, which will replace AT&T's cumbersome EDGE network and should make Web browsing easier.

Since the original iPhone was introduced nearly a year ago, Apple (AAPL, Fortune 500) has sold 6 million handsets, Jobs said Monday. The company has set a goal of selling 10 million handsets worldwide this year - a target that may be too ambitious given the sales pace to date.

One lucrative market that Jobs & Co. are looking to crack: working professionals, most of whom now use the BlackBerry, made by Research in Motion (RIMM).

Jobs kicked off the conference Wednesday by talking about the iPhone for business users. He said that the iPhone now works with Microsoft's Exchange office server systems - a key feature if the iPhone hopes to seize market share from the BlackBerry. Jobs said that 35% of the Fortune 500 has participated in a beta program for business applications for the iPhone.

Also, Jobs announced that the new version of the Mac operating system OS X is called "Snow Leopard." To top of page

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