Just like 10 years ago, telecom companies are starting to subsidise computer purchases in exchange for long-term Internet service contracts. But this time, it looks like it’ll end up better for the carriers and for consumers.
The latest: More cheap, subsidized 3G netbooks are on the way. Verizon (VZ) Wireless confirms that it will start selling netbooks this year, meaning it’s probably going to match the enticing $99 price that other retailers are selling at.
This is a smart move by the carriers. For a roughly $300 subsidy on the netbook — about the same amount they subsidise smartphones — they get someone locked into a 2-year 3G data contract at around $45-$60 per month. Over the course of two years, that’s $1100 to $1400 in revenue they wouldn’t have necessarily seen. And they get another subscriber to put in their quarterly report to Wall Street, showing that the wireless growth boom still has some steam.
But we can’t help but think back to the last time the computer industry got telecom companies to subsidise their sales. That was during the late 1990s and early 2000s, when dialup ISPs like Microsoft’s MSN offered $400 rebates on new PCs if you signed up for three years of dialup service. Microsoft eventually had to cancel the campaign because it was costing too much money. (And boy were those consumers screwed, stuck on $250-per-year MSN dialup contracts.)
The difference this time: Subsidizing netbooks isn’t likely to put wireless carriers under financial strain — that’s the business model they’ve successfully used for years with mobile phones. And anyway, the volume will probably be relatively low. The market for a $600-per-year wireless netbook with a small screen and cramped keyboard is probably not huge right now. Gartner expects 21 million netbook sales worldwide this year; only a small subset will be subsidized by wireless carriers in the U.S.
And consumers? Unlike last time, when broadband came up and crushed dialup, it’ll be about 1.5 to 2 years — pretty much the duration of that 3G contract — before there’s a much-faster, widespread mobile Internet access option for most people.
Clearwire (CLWR) is building out a super-fast 4G network using a technology called WiMax, which it hopes will cover up to 120 million Americans by the end of 2010. But there’s no guarantee that will actually happen. Clearwire, if you recall, merged with Sprint’s 4G business last year. Sprint vowed in 2006 to build out its 4G network to reach 100 million people by the end of 2008. It’s not even 10% there yet. (Even once that happens, Sprint will need to acquire custom netbooks to sell.)
Meanwhile, Verizon and AT&T — the two biggest U.S. wireless providers — are also both rolling out 4G networks. They won’t be compatible with the 3G card in today’s netbooks. But by the time the networks are rolled out in enough markets to be useful for most people, you’ll be ready to get a new $99 netbook. (Or whatever else is on the market by then.)