Subscription accounting means you spread the revenue from a sale over a period. In the case of the iPhone, this is spread over the two year period of the standard cellphone contracts. This allows them to offer 'free' updates for the period of the subscription, because the sale is ongoing. The iPod Touch is sold outright, and does not use subscription accounting which is why the OS updates had to be paid for. The reason they couldn't offer free updates was because of Apples's understanding of a rule in the Sarbanes-Oxley Act, which was put in place post-Enron to prevent certain creative accounting practices which involved recognizing the full revenue for a sale when it was signed, even though the services were due to be delivered over a future period. The upside was the ability to push out free updates (and be sure that everyone would adopt them and keep the platform moving forward, such as the App Store in OS 2.0), but the downside for Apple was not being able to show immediate profits from all those iPhone sales.
In September last year, this rule was clarified by the relevant advisory board and it was made clear that Apple would be able to drop subscription accounting and recognize the sale revenue when it occurred, and still be able to offer free updates. This would apply to the iPod Touch as well.
So in short, to answer the original poster, Apple has moved the iPhone AWAY from subscription accounting, and future updates such as OS4.0 will be free to both iPhone and iPod Touch owners.
A more detailed explanation here:
http://www.roughlydrafted.com/2009/10/21/inside-apples-iphone-subscription-accounting-changes/
Sign up with Google