Analysis: Will consumers be deterred by lack of 3G in Amazon's Kindle Fire?

When Amazon introduced its highly anticipated tablet, the Kindle Fire, 3G cellular support was conspicuous in its absence. Although competitive tablets, including Apple's (NASDAQ:AAPL) iPad, the Samsung Galaxy Tab and the Motorola Mobility (NYSE: MMI) Xoom all offer both Wi-Fi and cellular options, experts said Amazon probably decided to forgo cellular connectivity as a way to keep its costs in check--the Fire is priced at just $199.  

Click here for details on how many tablet users connect to 3G networks.

Surprisingly, Amazon didn't debut a more expensive version of the Kindle Fire with cellular connectivity. Nor did it announce any relationship with a cellular operator to sell the tablet. Amazon has historically offered two versions of its Kindle ereader--one Wi-Fi only and one with Wi-Fi and 3G. 

Ross Rubin, executive director of industry analysis at NPD Group, said he thinks there were a couple of factors behind Amazon's decision to forgo cellular connectivity. First, the company wanted to be very aggressive with its pricing and adding a 3G module to the Fire would bump up the price. Second, Amazon knew that it couldn't mimic the Kindle ereader model, where the cost of 3G connectivity is built into the price of the ebooks. 

Rubin noted that downloading a book over 3G uses minimal network bandwidth so it's easy to build those costs into the price of an ebook. However, a tablet is a multimedia device, and consumers will likely being using it for more bandwidth-intensive activities, such as watching a video or surfing the Web. "It would be impossible to offer cellular access for free," Rubin said. "And I don't think Amazon wants to be part of the $20 or $30 data price plan that carriers offer. That's what they rallied against."

Will the lack of 3G connectivity deter some consumers from purchasing the Fire? Rubin doesn't think so. "We see evidence that the majority of tablet usage takes place in the home, or in an area covered by Wi-Fi," he said. "There's a great chance that consumers will be in a Wi-Fi-covered area when using a tablet."

That may be true, but according to new research from Nielsen, when asked about what features were important to have in a tablet, 42 percent of respondents said mobile broadband (3G or 4G) connectivity was key (see related chart here).

Interestingly, consumers may consider cellular connectivity important when purchasing a tablet, but according Nielsen, the majority of tablet users (59 percent in the second quarter of 2011) are only using Wi-Fi to connect their tablets to the Internet. A scant 6 percent of tablet users said they are using the cellular network to connect and 32 percent said they are using a combination of cellular and Wi-Fi to connect (see related chart here).

Rubin believes that Amazon may eventually add cellular connectivity to the Fire, perhaps when 4G coverage becomes more prevalent. That sentiment was echoed by Roger Entner, founder of Recon Analytics, who believes that Amazon will eventually offer an LTE version of the Fire.

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