How will wireless carriers sell tablets?

Mike Dano

Samsung will hold an event this evening in New York City where, according to a spokeswoman, the company will announce its "latest Android-powered device, Samsung Media Hub and new digital marketing experience." According to Bloomberg, Verizon Wireless (NYSE:VZ), AT&T Mobility (NYSE:T) and Sprint Nextel (NYSE:S) will launch Samsung's GalaxyTab in the United States in a bid to counter Apple's (NASDAQ:AAPL) iPad--and Samsung may well confirm the report during its event tonight.

But the possible U.S. introduction of Samsung's GalaxyTab raises an important question: How will U.S. wireless carriers sell tablets? Should tablets make voice calls? Should they share the same data plan as smartphones? Should carriers subsidize the cost of tablets? And will customers be willing to lock themselves into a two-year service plan in order to test out a new class of gadget?

"It is unclear what the most appropriate sales channel for tablets will be," wrote research firm CCS Insight in a recent note. "Traditional electronics retailers or even fixed-line networks with a desire to enhance consumer use of broadband connections are the obvious channels. However, we believe that most sales will be through mobile network operators and retailers, given the subsidies they can offer. On this basis, consumers that choose to purchase subsidized tablets will have to subscribe to a lengthy contract in addition to the cellular connection they already have for their mobile phone. There is a real risk of a high return rate if they are not completely satisfied with the product."

(It's worth noting that Apple has so far eschewed the operator sales channel completely. CCS Insight posited that the iPad vendor may be doing so due to its limited iPad supplies as well as "legitimate concerns that Apple risks damaging the perceived value of the iPad if it is heavily subsidized or given away for free to consumers when bundled with an airtime contract.")

For one possible tablet sales scenario, research firm Current Analysis took a look at what upstart 3UK is doing with the GalaxyTab in the United Kingdom.

"Until now, there has been a clear divide between the worlds of smartphone and mobile broadband/PC connectivity (MBB) data plans," wrote Current Analysis' Emma Mohr-McClune in a recent research note. "Smartphones have been positioned together with smartphone plans, typically a bundle of voice, data and texts. PCs and tablets, however, have been treated to access-only data plans, commonly expressed in terms of a monthly allocation of MBs or GBs. 3UK, however, is positioning the Samsung GalaxyTab as a heterogeneous device; consumers can select either a smartphone-style or MBB plan."

According to Mohr-McClune, 3UK offers data-only pricing plans for the GalaxyTab that are similar to what operators are charging for the Apple iPad in the U.K., but also is offering smartphone-style plans that include voice calling (via cellular or WiFi), data access and texting. (The GalaxyTab can support voice calling through a speakerphone or a Bluetooth headset--meaning, you won't have to hold the 7-inch device up to your ear.)

Further, 3UK is marketing the fact that the GalaxyTab can act as a router, connecting up to eight devices via WiFi back into the operator's cellular network. "Once again, 3UK is challenging the market with a new usage scenario for the tablet," Mohr-McClune noted.

Samsung GalaxyTab"What this 3UK event flags is the ability for operators to treat tablets like smartphones; pre-embedding them with operator-branded software and services which allow the operator to give the biggest possible proportion of their customer base one-click access to a unique (and, importantly, operator-branded) service experience, across a range of devices and OS platforms," wrote Mohr-McClune. "Getting consumers to use operator-branded services opens the door to a whole range of opportunities, from additional revenue from content download to enhanced customer stickiness through data management. For mobile operators, that's the A and B of value-added service creation. It's something almost certainly that more operators will exploit as more tablets come to market."

Mohr-McClune concluded that Apple's iPad distribution scheme--which ignores the operator sales channel and subsidy completely--relegates wireless carriers into the dreaded role of the "dumb pipe." Thus, tablets like Samsung's GalaxyTab give wireless carriers "all the more incentive to channel value-added service innovation towards tablet products which reconfirm and support their traditional reseller dominancy, and allow for operator software integration."

However, what remains unclear is how operators' push to offer value-added services through tablets will sit alongside similar efforts by tablet vendors. Indeed, Samsung is reportedly building a "hub"-based content distribution network that will offer applications, movies and TV shows--just like Apple's iTunes program. Will operators want to support Samsung's "hubs" above their own offerings?

It seems the longtime struggle between carriers and device vendors over customer allegiance, a battle well highlighted in the smartphone field, likely will extend into the tablet arena. --Mike

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