Netbooks to come with Cell Plans for Data Service

How's this for some technological wizardry? Take a $350 netbook and turn it into a $1,500 device without changing anything inside.

That's exactly what Acer, RadioShack and AT&T have done with their latest netbook offer. On Friday, the trio said they will offer a netbook for $100 upfront -- but with a $60 per month, two-year data contract on AT&T. Over the two years of the contract, that adds up to a total of $1,540, or more than four times the list price of the netbook alone.

With the move Acer became the first company to bring a netbook on contract to the U.S. The offer is modeled on how most cellphones are currently sold, and follows similar netbooks-on-contract offers overseas.

"It is interesting move," says Bob O'Donnell, a vice president with research firm IDC, "but it won't make a huge dent in the marketplace right away. "The price points they are available today are way too high for most people."

Netbooks are lightweight notebooks that have limited processor power but offer the promise of easy internet connectivity, portability and low prices (generally under $400). By tying them to contracts, netbook manufacturers hope to drive the purchase price even lower, perhaps even to zero. But will consumers take the bait?

Despite the questionable value in this case, industry watchers say the trend is here to stay as more companies are likely to start selling netbooks this way.

Over the next year, upstarts such as Asus, traditional PC giants such as HP and newer entrants such as peripherals maker ViewSonic are likely to start offering netbooks for almost nothing, along with one or two year sign-ons at major carriers. Ultimately even AT&T, Sprint or Verizon might offer their own branded netbooks.

Sean Maloney, senior vice president in charge of sales and marketing at Intel and the chief strategist for the company, told Wired recently that the popularity of bundled netbook deals in other countries makes it very likely that U.S. consumers will also hop on this train.

Almost-free netbooks bundled with a long term contracts have become popular in countries such as Japan and Germany. In September, Acer partnered with T-Mobile in Germany to offer its netbook for one Euro on a €35 per month two-year data contract.

Bigger PC manufacturers such as Lenovo are also dipping their toes into these waters. Lenovo inked its first netbook-on-contract deal with Bougyues, a popular Telecom in France, last month, says a company spokesperson. From Nov. 17 to Jan. 18, Lenovo is bundling its IdeaPad S10 netbook along with a mobile Internet package from Bougyues as part of a special offer.

"The bundle in France is just starting, so it's too soon to say," says the spokesperson. "But bundling is one of many things we're looking at going forward as evidenced by the relationship with Bougyues."

Until recently, netbooks in the U.S. have been sold like their larger cousins, notebooks. Their tiny size and online connectivity potential, though, puts netbooks closer to cellphones than laptops, say analysts. Not surprisingly, manufacturers and telecom carriers are following a more cellphone-like retailing strategy for these machines.

But the move has not been without initial mistakes. Acer's current netbook-on-contract deal is a pricing disaster.

A quick back-of-the-envelope math brings some shocking numbers. $60 for 24 months plus the $100 down payment comes up to a whopping $1,540 that you have to pay for a device that without the bundling would cost just about $350.

Clearly not many consumers are likely to bite this deal. "Why bother?" says O'Donnell. "There's a serious value question here."

Acer executives were not available for a comment.

HP is also exploring similar deals to launch a netbook on contract with a major carrier.

As telecom carriers discover their promise, these miniature PCs are also likely to find new advocates in the telecom companies.

"Netbooks bring in contract revenue and a lock-in period of two years for the carrier," says Ross Rubin, an analyst for The NPD Group. "And there's the promise that if customers have a good experience, they will likely turn to the same carrier for their voice needs."

Netbook subsidies are mostly likely to be borne by the telecom carrier that is offering the bundled service, says Rubin. AT&T' spokesperson Mark Siegel refused to comment on the subsidy.

Indeed, AT&T has been quick to dissociate itself from the deal that Asus and Radio Shack have just announced.

"This computer is not being sold by AT&T," says Siegel. "It's not like a device sold in our stores that we may or may not subsidize. This is a decision RadioShack has made."

But if the netbook bundles prove popular, it's unlikely that telecoms will remain standoffish for long, since netbooks could stimulate more wireless data usage.

Wireless data services are an important and lucrative source of revenue for telecom carriers. The US wireless data market grew 7.3 percent in the third quarter from the previous quarter, reaching $8.8 billion in data services revenue, according to mobile industry consultant Chetan Sharma.

Sharma predicts that the average revenue per user that telecom companies make from voice calls is likely fall by end of 2009 to be replaced by data revenue, which will become more dominant. That also indicates telecom companies could be exploring alternate data access devices and netbooks fit the bill.

Moves by big box electronic stores such as Best Buy to promote mobile devices could also help drive the netbooks on contracts trend, says NPD's Rubin. In October, Best Buy said it is launching stand-alone stores called Best Buy Mobile in malls to peddle mobile devices. The stores are targeted at women and young shoppers—the demographic that also dovetails with those buying a netbook.

"The point is people see this as an interesting new market opportunity," says O'Donnell. "Everyone's thinking if Acer and Asus can be big then why can't they?"

But getting consumers to spring for netbooks like they buy cellphones won't be easy. There are cheaper ways to get the kind of easy data connectivity that netbooks like Acer on AT&T promise.

Consumers could use Wi-Fi hotspots offered through carriers to stay connected using their laptops, says Rubin, and they could turn to their smartphones when Wi-Fi is unavailable.

Or they could just plunk down the $350 to buy a netbook off the shelf. All of that will be cheaper than the $1,500 they will pay for a netbook on contract.

For netbooks on contracts to take off like cellphones, the data plan pricing has to be better. Ultimately carriers will have to offer better pricing, like charging customers about $10 to $20 a month to add a netbook onto an existing data plan, says O'Donnell.

"We will certainly see more people do this," he says. "Many more carriers will be experimenting with it in 2009"

By Priya Ganapati December 15, 2008 | 3:58:08 PMCategories: Netbooks