The New iPhone: Faster, Stronger, Cheaper

Updated from 2:58 p.m. EDT

SAN FRANCISCO -- Relax, America -- your new iPhone has arrived.

And the even better news: It now costs about half what it used to.

After months of speculation, Apple(AAPL Quote) CEO Steve Jobs unveiled the company's latest iPhone model Monday, designed to run on faster 3G cellular networks, as the company looks to expand sales of its latest technology hit.

At the company's annual Worldwide Developers Conference here, Jobs displayed the new, thinner device, which includes a GPS system, better battery life, boosted enterprise support and third-party applications.

The new version will be available July 11.

Jobs also showcased updates to iPhone's software, including the MobileMe platform, which offers "push" email and calendar services to sync data with Macs and PCs.

Cramer: Make a Bushel Off New iPhone

But no new feature may be as compelling as the 3G iPhone's updated price: $199 for its 8-gigabyte version, down from the original model's $399, while the 16-GB version will retail for $299, down from $499.

The $199 tag for the iPhone will, however, come at a price for Apple. The company has entered into a new agreement with AT&T(T Quote), the exclusive service provider for the iPhone in the U.S., that eliminates the unusual revenue-sharing model it had with the latter.

For the first-generation of the iPhones launched a year ago, AT&T shared a portion of its monthly service revenue with Apple. The two companies never disclosed the exact revenue that AT&T paid to Apple, but last year Piper Jaffray analyst Gene Munster estimated Apple was receiving $18 a month for each iPhone subscriber from AT&T.

Under the new agreement, which is consistent with what most handset makers have with service providers, there is no revenue sharing, and both iPhone 3G models will be offered at attractive subsidies.

Apple has projected that it would sell 10 milliion iPhones worldwide in 2008, and many analysts have suggested that a price cut -- in combination with a new 3G model -- was necessary to reach that goal.

Jobs said Monday that 56% of people who didn't buy an iPhone did so because they couldn't afford it, making it clear that Apple had little choice but to work with its carrier partners to offer subsidies on the iPhone.

The company is targeting selling the iPhone in up to 70 countries over the next several months, Jobs said.

Shares of Apple showed a sell-the-news reaction: they closed down $3.91, or 2.1%, to $181.73. The market's reaction was in line with how investors have reacted in the past to Apple's keynote. Historically, Apple's stock has fallen an average of 2% over the last four years on the first day of the developer conference.

The announcements were widely cheered by Apple developers at the event. The conference this year is expected to be attended by more than 5000 developers, and is the first time that it has sold out since it started in 1983.

Meanwhile, Jobs' frail appearance was noticed by many attendees. Jobs battled pancreatic cancer in 2004 and underwent surgery for it.

Apple said it also plans to update the software for the iPhone and offer iPhone 2.0 software free to current users and at a price of $9.99 to iPod Touch users.

During the keynote, Jobs emphasized the iPhone's business-friendly features, in a bid to push the phone into enterprises, where BlackBerry maker Research In Motion(RIMM Quote), Nokia(NOK Quote) and Motorola(MOT Quote) have ruled so far.

iPhone 2.0 software will allow users to search among their contact, complete support for iWork documents, complete support of Microsoft(MSFT Quote) Office documents including PowerPoint. Additional new features include bulk delete for email, parental controls and a scientific calculator.

Apple also offered more details about the App store that allows independent developers to create programs and applications for the iPhone and sell it through the store in a model similar to that of music and iTunes. Developers can set the price for the applications that will sold through Apple's App store or offer it for free.

Developers will get to keep 70% of the revenue from sales of the application from the App store and Apple will not charge credit card or hosting fees, said Jobs. The App Store is expected to be available in 62 countries.

During the nearly two-hour long keynote address this year, Jobs also confirmed the next version of the Mac OS X operating system, the OS X 10.6 code-named the "Snow Leopard".