Starting Tuesday, Wal-Mart will sell the 16GB iPhone 3GS for $97 with a two-year AT&T contract, instead of the $199 price tag both AT&T and Apple offer. When Wal-Mart announced its planned price drop last week, analysts and consumers alike saw the move as a confirmation that Apple would unveil a new model of the popular smartphone in June.

But it’s not at all unusual for big-box retailers such as Wal-Mart, Amazon.com, Best Buy and Radio Shack to offer handset prices that are significantly lower than those at carriers. In April, the average subsidized smartphone price from retailers was $43.64, while mobile operators charged nearly three times as much -- an average $117.08, according to industry tracker ABI Research. The averages shift monthly as new phones enter the market, and overall prices have steadily dropped as smartphones have gotten cheaper, says Michael Morgan, a senior analyst for the firm.

Carriers, too, are anxious for business and can be open to negotiating on handsets at a loss if it means gaining new customers, says Harry Wang, the director of mobile product research for Parks Associates. Wal-Mart, for example, has a strong foothold with lower-income households that could broaden the audience for major carriers. Ultimately, the two-year service contract is more profitable, he says
 

Carriers, too, are anxious for business and can be open to negotiating on handsets at a loss if it means gaining new customers, says Harry Wang, the director of mobile product research for Parks Associates. Wal-Mart, for example, has a strong foothold with lower-income households that could broaden the audience for major carriers. Ultimately, the two-year service contract is more profitable, he says.

From the article, "Retailers Enter the Cellphone Fray" by Kelli B. Grant

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