Laptop subsidies: How aggressive will operators be?

AT&T Mobility's new partnership with Lenovo and Ericsson to reduce the cost of embedded HSPA laptops to make them similar in cost to laptops that aren't embedded could be the beginning of the laptop subsidy game in the US market. But how aggressive do operators want to be?

Laptops are flying off operator shelves in Europe, where the laptop subsidization game is running rampant. Orange in the U.K. is giving customers an HP notebook that runs on its HSDPA at no cost if a wireless data service bundle is purchased, and it has sold out of the laptops. The U.K. director of retail sales said she has been amazed at the demand for the service, which bundled 3 GB of data and 100 texts per month from the laptop. Vodafone and T-Mobile are also playing aggressively in the laptop game.

Back in March I asked a Verizon Wireless spokeswoman whether the operator had any interest in subsidizing laptops. She said Verizon had no intention of doing so. Of course, now the economy is in the pits, and analysts expect an all-out price war because of it. Subsidizing laptops would certainly spur mobile broadband adoption and lock these high-revenue users into a data contract for about two years.

Dell CEO Michael Dell predicted last month that laptop subsidies would happen soon, and John Thode, Dell's VP of small-screen consumer devices, said the announcement of such a deal would be forthcoming.

What are the implications of subsidizing laptops?

For one, operators aren't that thrilled about playing in the subsidy game as margins can decline and customer acquisition costs rise. To wit: AT&T Mobility reported selling a whopping 2.4 million iPhone 3G devices in the third quarter, but it spent $900 million in customer-acquisition costs related to the device and saw a drop in its overall operating margins from 35.3 percent a year ago to 33.8 percent. However, the operator expects the hit on margins to be short term as high ARPU users are coming on the network.

Could the same phenomena happen if operators subsidize laptops? Most of the subsidizing talk has to do with cheaper "netbooks," which are more basic notebooks designed for web browsing, email and other routine tasks and are often priced under $500. The subsidy amount for these devices would be similar to the subsidies operators make for smart phones. Chances are, subsidized netbooks will catch on quickly given the fact that PC makers are reporting brisk sales in this tough economy and have a dramatic impact on operator margins.

And I can think of other questions operators will need to answer. Selling laptops mean increased costs associated with customers service and support. Would operators essentially be entering the PC business? How much buying power will they have with PC makers given the fact that manufacturers already operate on such thin margins? What impact will subsidized laptops have on data traffic on operators' networks? Operators need to make sure they are transmitting data as cost-effectively as possible or the revenues the make will be eaten up by the costs of transmitting data. And would operators have to cut off a number of users for abusing the limits of their data plans?

At the outset, subsidizing netbooks seem like a logical step, but I suspect we'll see operators treading carefully in this uncharted territory. --Lynnette 

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