iPhone to cut into AT&T earnings until 2010

There would be penalties for users who do not activate the iPhone in the first 30 days, AT&T said, in a move aimed at reducing the number of customers who buy an iPhone and tweak it so that they can use it on another network.

The $199 version of the new iPhone will have 8 gigabytes of storage and a $299 model will have 16 gigabytes compared with the existing iPhone, which runs on a slower data network but costs $399 or $499. AT&T said the subsidy would boost sales.

"If you loved the first iPhone you're going to be blown away by this version," Ralph de la Vega, the head of AT&T's wireless business, told analysts on the same call.

AT&T also said it was increasing its data service charge for subscribers with the new iPhone to $30 a month from $20 for the existing iPhone. Business customers will have to pay $45 a month for data services. This is on top of voice service plans, of which AT&T's cheapest is $39.99 a month, it said.

AT&T forecast a 2008 adjusted consolidated operating income margin of 24 percent and forecast a full-year wireless operating profit margin of 39 percent to 40 percent.

Verizon Wireless is owned by Verizon Communications Inc and Vodafone Group Plc. Shares of AT&T fell 65 cents to close at $37.56 on the New York Stock Exchange. Apple shares fell 2.2 percent to $181.61.

(Editing by Richard Chang and Braden Reddall)