2009

Case 8

: AT&T's Added-value Pricing of iPhone Services

AT&T is charging $10 pert month for the GPS mapping feature on the iPhone. That is $120 per year, versus

dedicated mapping devices from Tom Tom and others that will be under $200 by the end of 2009. It is also charging

about $50 a month extra for broadband Internet connection as opposed to the purchase of a third-party $199 device

that links the regular iPhone to a computer. The AT&T thinking is something like the following: "Our iPhone users

have already paid a premium price for their handset. They are premium-price consumers. If they want a classy iPhone

with classy GPS and classy broadband, we have it. People who own an iPhone, are they going to carry around a Tom-

Tom? Are they going to buy a gray-market device to connect their phone to a notepad? I don't think so. They will pay

up."

Question

What is the logic behind AT&T's monthly extra charges for GPS mapping and the Internet connection?