$199 sounds cheap, but u have to look at the whole picture. Iphone has to be sold with contract of minimal 18 months. In US, AT&T has raised the price of the data plan from $20 to $30 a month. AT&T's profits will drop over the next 2 years because of their subsidy to Apple, but they expect to show gains by 2010. They should expect a large number of new customers with the new $199 iPhone.

So Iphone 2.0 cost much more then just $199 USD.