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Can Netbooks Survive The Carrier Subsidy Model?

AT&T recently began offering netbooks for the low price of $99 -- as long as you're willing to sign up for a $60-per-month wireless data contract. The Internet is a key tool for netbooks, but will the subsidy model really work as it does for cell phones?
AT&T recently began offering netbooks for the low price of $99 -- as long as you're willing to sign up for a $60-per-month wireless data contract. The Internet is a key tool for netbooks, but will the subsidy model really work as it does for cell phones?When you walk into a cell phone store, it is quite possible to walk out with a shiny new phone that you didn't pay any money for. This is made possible by carrier subsidies. AT&T, Sprint, T-Mobile, Verizon and others buy the cell phones from the manufacturers at cost and then sell them to the public at or below cost. The network operators use the low handset prices to get you to sign a one- or two-year contract for their services. This lets the carrier sell an expensive phone, such as the iPhone, at a price that is acceptable to consumers. Without subsidies, many cell phones cost cost $300 or more.

Netbooks have dropped in price so much that they rival cell phones at full retail price. The unsubsidized Nokia N97, for example, will cost about $695 when it reaches the market in a few months. Many netbooks can be had for less than half that amount.

This begs the question: If netbooks are so inexpensive, why bother with subsidies?

AT&T and its retail partner RadioShack can answer that for us: wireless data contracts. AT&T and RadioShack offered netbooks for the bottom-dollar price of just $99. The stipulation, of course, is that customers agree to a wireless data contract to get that subsidized price. Most wireless data plans cost about $60 per month, before taxes and fees. That means AT&T is set to reap approximately $1,440 in revenue over the course of 24 months. Not a bad chunk of change for AT&T.

Then you think about applying that to the cost of a netbook. This makes the $99 netbook actually cost users $1,540 (at a minimum). When it comes to cell phones, it's easier to write the cost of the contract off because, after all, that's what we're buying cell phones for in the first place. There's no hard sell. People want/need cellular service, and will pay $40+ per month to get it.

Is the demand for wireless data the same? It's growing, to be sure, but the number of wireless data card users is a tiny fraction of the overall number of cell phone users world wide. Laptops and/or netbooks that come with wide-area wireless capabilities built in will continue to swell in number, but if they are adopted (and used) in too great a number, there's the possibility that the networks won't be able to handle it.

Then there's the current economic situation to factor in. When every penny counts, that $99 may look good on the surface, but being sand-bagged for an additional $1,440 over the course of the next two years may give many pause.

So what do you think? Are subsidies going to be the netbook's future? Will subsidized notebooks become the new reality of cheap, on-the-go computing? Are these types of deals more apt to entice consumers or business users? Or are netbook prices already low enough that only the most die-hard users of wireless data will bother with a contract?

I'd appreciate hearing your thoughts.

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