Executive Summary:

Apple shipped a new phone, iPhone 3G, which works with wireless networks, welcome news to enterprise users but pricey news as well.

By the time you read this, Apple will have released its second-generation smart phone, the iPhone 3G. This new iPhone hardware offers some important improvements over its predecessor. But the iPhone 3G also offers some hidden caveats that could obviate its most important benefits. Here’s what you need to know about the iPhone 3G.

What’s Old Is New
From a form-factor perspective, the iPhone 3G is almost identical to its predecessor. It’s actually a hair thicker, but thanks to its tapered back, it appears thinner and fits better in the hand. The metal back from the original device has been replaced by a black (or, alternatively, white) plastic back. Meanwhile, the few side-mounted buttons on the device are now metal; they were plastic on the original.

Aside from that, the device’s processor, camera, and display are unchanged. Battery life is expected to be comparable to the original, meaning it should be excellent.

That’s 3G as in Wireless
The “3G” in the iPhone 3G’s name refers to the fact that this device finally works with modern third-generation (3G) mobile wireless networks. (The iPhone 3G itself is a second-generation iPhone.) The original iPhone worked only with so-called 2.5G networks such as AT&T EDGE, a network whose performance and availability is so infamously poor that it’s widely referred to as the iPhone’s Achilles Heel.

AT&T’s 3G wireless network, however, fares much better, and testing has found it to be faster than competing 3G wireless networks from carriers such as Verizon. That said, AT&T 3G is available in very few markets—major cities such as New York and San Francisco are well covered, but move outside these areas and your results will vary widely. For this reason, the iPhone 3G will also fail back to EDGE if AT&T’s 3G network can’t be found. (Like its predecessor, the iPhone 3G is also compatible with Wi-Fi–based wireless networks as well. Note that 3G, like Wi-Fi, is only used for Internet services and doesn’t affect voice calls.)

Its 3G coverage aside, the iPhone comes with one other competitive disadvantage: It can’t be tethered to a mobile PC and used as a wireless modem. And the iPhone 3G incurs a more expensive data plan than does the original iPhone, thanks to its faster networking and an assumption that iPhone 3G customers will be heavier data users.

True GPS
A glaring omission in the original iPhone was its lack of GPS functionality, due to the lack of a GPS hardware chipset. Apple partially made up for this omission in the original device with a software update that used Wi-Fi access point or cellular tower triangulation to estimate location, and though better than nothing, it offered nowhere near the accuracy of true GPS. The iPhone 3G dispenses with this software trickery by offering GPS hardware that integrates with the phone’s Google Maps application for highly accurate tracking.

Availability and Pricing
Although the original iPhone was available in only six countries, the iPhone 3G will ship to a much larger audience. Apple says that it will ship in 25 countries at launch and will be available in up to 70 countries by the end of 2008.

Pricing is a controversial area. While the original iPhone debuted at ungodly prices ($499 and $599 for the two original models) and carried steep monthly packages because of its data plan requirement, the iPhone 3G comes with a more traditional buying model. For individuals, the iPhone 3G will sell in two versions, one with 8GB of flash storage for $199 and a 16GB model that will retail for $299. (These prices are for the United States only; Apple says they represent the maximum pricing we’ll see worldwide.)

If that sounds like a huge price cut, hold on to your calculator: AT&T and Apple’s other worldwide wireless carriers are now subsidizing the cost of the device, so monthly charges are going up—way up in some cases. The base monthly fee for an iPhone 3G is $10 higher than it was for the original device—or about $80 a month after fees and taxes. Put another way, over the course of a two-year contract, the iPhone will cost at least $40 more than its predecessor. And that price doesn’t include Short Message Service (SMS) messaging anymore, a feature that will incur additional fees. The low-end SMS package will add another $5 a month. So if you use SMS, the iPhone 3G is at least $160 more expensive than its predecessor, over two years. Business customers—that is, those who wish to use the iPhone 3G to access Exchange Server–based email, contacts, and scheduling—will pay even more.

Recommendations
If you already have an original iPhone, upgrade to iPhone 3G only if you’re sure you’re going to get good coverage by AT&T’s 3G network. Otherwise, you might want to hold off: The original iPhone will offer identical performance on AT&T’s EDGE network and can be upgraded for free to utilize the same system software as the iPhone 3G (and access business features such as Exchange). If you live in a major city, or are sure that you can get AT&T 3G, the extra cost of the iPhone 3G might be warranted. AT&T 3G performance is excellent, and you’re going to want it to take advantage of Apple’s iPhone App Store and to keep your Exchange data synchronized efficiently.

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