We keep hearing that the cost of the new iPhone 3G S to be released on June 19th will be $199 for the 16GB model or $299 for the $32GB model, but only if you are signing a new 3 year voice & data contract with Rogers. They throw in this last disclaimer saying that the carriers are subsidizing the cost of the phone, so we don't have to pay as much up front, and it is in our best interest. But is that really the case?

Until the actual device is released, and torn apart by a company like iSuppli, who has expertise in determining the cost to purchase and assemble electronic devices, we can only guess at it's cost to manufacture. But what we can do is look at how much previous devices have cost, and make a few assumptions.

* Sale prices below are accurate for both Canada and the US, but build costs are based on USD.

The first generation iPhone sold at retail for $399 in its 8GB form, eventhough it cost roughly $226 to build. This first version was sold directly at the Apple store, and did not require you to sign a contract and was not subsiized by the carrier, however they did reportedly provide a portion of your monthly service fees to Apple. Things changed for the second generation iPhone 3G, and the 8GB version actually cost less to build, at $173, and sold for a subsidized price of $199. The price according to iSuppli went down, because they were able to reuse many of the components from the original iPhone.

It is also interesting to note that doubling the memory for the 16GB iPhone 3G only adds about $23 to the cost, yet the subsidized price rises $100 to $299. These prices do not take into effect the R&D or marketing and shipping costs which are estimated at about $30 per device, but give us a pretty good idea of how much the devices are really worth. The other cost to Apple is licensing the various technologies such as the 3G radio and GPS which is about $50 per unit.

So in the end, the 8GB iPhone 3G initially cost about $253 and sold for $199. The 16GB version cost $276 and sold for $299. So it is evident that the carriers were indeed subsidizing the phones, and customers were getting a break.

But lets look at the cost to manufacture the iPod Touch line. Although it is not simply a stripped down iPhone, as the components are very different, it gives us an idea of how Apple prices their products. Typically iPod devices cost about 50% of their retail price to manufacture, and as these are unsubsidized because they are not cell phones, that is the total amount of revenue Apple receives from the device (not taking into account music, video or app purchases on the iTunes store).

Apple realized less than 50% revenue on the first generation iPhone which was sold unsubsidized, but did generate rate plan revenue for them from AT&T. So if Apple were to have continued this for the iPhone 3G (which is now estimated to only cost them $149 to build in 2009) we can assume the costs would have been $500 for the 8GB iPhone 3G and the 16 GB would have been $550, but more likely $600 to provide product differentiation.

Although the new iPhone 3G S will again increase it's memory options, as well have a better camera, video processor and a compass, based on the published specs it is likely again using many of the same components from the 3G and will likely cost between $200 and $250 to manufacture the two models, and all-in pricing including R&D and shipping would be between $250 and $300. Keeping the price of a new unsubsidized device at hte $500 and $600 marks.

However initial indications from carriers such as Rogers in Canada and AT&T in the US are that unsubsidized off-contract prices will actually be much higher. AT&T has mentioned prices of $599 and $699 for the two models, $100 higher than what I have estimated they should be charging if Apple were selling them directly. Prices will likely be similar in Canada, with some rumours pointing to $699 and $799 prices, which there is no way I would pay for a phone.

So should Rogers be subsidizing the phones? It is a great deal if you don't have a phone or are not on an existing contract, but for the majority of people that is not the case. As well, people who waited in line for the iPhone 3G last July and want to upgrade will not be eligible for the subsidized pricing, but more likely something in the middle. AT&T has announced early upgrade pricing of $399 and $499, so $200 more than a new customer, and $200 less than a customer not wanting a contract.

Bottom line is we get a great discount on our first phone, but actually pay more for subsequent devices if we upgrade every year. I think we would be far better off if they were sold directly by Apple still, and we just had to sign up for service with our GSM carrier of choice. I would even be OK if the phones were still locked, and we didn't have choices of carriers, if we could save a little money on the phone by buying it direct from Apple.

It will be interesting to see how this plays out over the coming days, as Rogers releases their full pricing options, and whether they reward their loyal customers or not. If not, don't expect the frenzy that existed after the iPhone 3G was released, as most existing iPhone customers will likely just upgrade the OS to 3.0 which will be free, because it will be hard to justify $600 or $700 for a 3 Megapixel camera, video recording, voice dialing and a compass!

• Darren Mak's blog