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3/8/2011
02:29 PM
Eric Zeman
Eric Zeman
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5 Reasons Not To Buy A Subsidized Tablet

RIM, HP, Samsung, HTC, and others are rolling out their iPad competitors -- skip the subsidized models and pay full retail price for a tablet. Here's why.

Motorola's Xoom tablet went on sale February 24 at two distinct price points. It can be purchased for either the full retail price of $799.99, or the subsidized price of $599.99. Which is the better deal?

Savings Aren't The Same As With Phones

Right now, most smartphones sell for between $99 and $199. The full retail value of those phones can be absurdly high -- often $500 to $600. Carriers subsidize the price of smartphones in order to convince you to sign a two-year contract, providing them with income for 24 months. With smartphones, the customer actually realizes a significant up-front savings -- $300 to $400 per device. It's just not the same with tablets. Those who purchase the Xoom on contract, for example, will save about $200. The same was true with the original Galaxy Tab at launch last year, too.

They Get Your Money Anyway

Don't be fooled by the lower sale price of a tablet that's subsidized. The contract will cost you far more over the course of two years than the measly up-front savings. For example, the minimum monthly data plan being offered by Verizon Wireless for the Xoom is $20 for 1 GB. That adds up to $480 over the course of two years. If you choose the 80 GB per month plan, expect to pay $1,980 by the time the contract expires.

Early Termination Fees

Buying a subsidized tablet means signing a contract. You'll be subject to an early termination fee (ETF) if you break a contract before it runs out. Moving out of the country? Can't afford it? Want better service? The reason doesn't really matter. If you break a contract, expect to pay. For example, Verizon Wireless will hit you with a $350 ETF if you buy the subsidized Xoom and then break the contract. Most carriers pro-rate their ETFs, which decrease over the length of the contract. But at the end of the first year, when better and more capable devices (and networks) are available, that ETF will rear its ugly head.

Limits Upgrade Options

By signing a contract, you severely limit your upgrade options. Apple has been selling the original iPad for a year. The iPad 2 goes on sale March 11. People are selling their first-generation iPads by the horde in order to upgrade to the new one. If Apple had sold the iPad with a subsidy, it's not clear how easily customers would be able to upgrade to new hardware. Selling equipment that's under contract can be tricky.

Wi-Fi Is Almost Always Good Enough

I've owned the iPad since day one. I bought the Wi-Fi-only version. Over the course of the last year, I've never said to myself, "Man, I wish I'd bought the one with 3G." I've always been able to hop online via Wi-Fi with the iPad, and have avoided monthly access fees entirely. About the only time you might not have access to Wi-Fi is when you're out in the field. In such cases, it can be more economical to use a smartphone to provide Internet access rather than the tablet itself.

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