Why Microsoft's Surface tablets don't have wireless, and what that means for carriers

Microsoft (NASDAQ:MSFT) announced its new Surface tablets, which represent both a major new strategic direction for Microsoft and an acknowledgement of the threat of the Apple (NASDAQ:AAPL) iPad to the PC industry. While there's plenty in the announcement to chew on, one critical element missing from Microsoft's current tablet effort is a cellular component.

Microsoft's sleek new tablets offer plenty in the way of specifications--HD displays, VaporMg (whatever that is), and 2x2 MIMO antennae (for Wi-Fi)--but neither the Windows RT Surface tablet nor the Windows 8 Pro Surface tablet features a built-in cellular modem. Why would Microsoft skip over a seemingly key technology in a device positioned for the future?

  • It's expensive. While Microsoft has not said how much its Surface tablets will cost, they will probably be as expensive if not more expensive than the iPad. Installing a cellular modem into the devices could add as much as $100 to the gadget's base price. For example, the LTE version of Apple's new iPad is $130 more expensive than the Wi-Fi-only version.

    Moreover, Microsoft may not have wanted to deal with the design issues that cellular modems raise, including battery drain, heat generation and integration costs.

  • Most consumers aren't interested in cellular capabilities. Repeated studies have shown that most tablet buyers are selecting the Wi-Fi-only versions of the gadgets. During 2011, slightly les than one-third of all the tablet computers sold across the globe featured a built-in cellular modem, according to figures from ABI Research.

    And those who purchase tablets with cellular modems aren't necessarily using that capability. A recent report from Chetan Sharma Consulting found that 90 percent of tablet users are only using Wi-Fi, even if the tablets have cellular data capabilities. (Sharma's findings apply only to the U.S. market.)

  • Wi-Fi is becoming good enough. Wi-Fi networks are popping up everywhere. Indeed, in just the past few weeks a number of announcements highlight the growing Wi-Fi space: MVNO Karma plans to launch a service that encourages users to share Wi-Fi connections using Clearwire's (NASDAQ:CLWR) mobile WiMAX network; and Comcast, Time Warner Cable, Cox Communications and Bright House Networks announced their joint CableWiFi network that will be available to their respective customers.

    And tablets lend themselves to Wi-Fi scenarios. Though smartphones are carried and used everywhere--grocery stores, malls and in the car--tablets are reserved for "sit down and browse" situations. Such situations likely will occur where Wi-Fi is already available: Home, work and at the coffee shop or recreation center.

What's most interesting though in Microsoft's Surface announcement is the implications for wireless carriers.

First, it means that wireless carriers probably won't sell Surface tablets in their retail stores. Some carriers had hoped that the inclusion of wireless into devices like netbooks and tablets would generate additional traffic into their retail outlets, encouraging users to think of carrier stores as a source for a variety of electronic gadgets. However, the collapse of the netbook category and the sluggish sales of cellular-capable tablets have conspired to squash those hopes. (According to ABI, wireless carriers represented just 13 percent of all media tablets shipped in the second quarter of last year.)

Second, and perhaps more importantly, carriers will have no way to rope in Surface users to shared data plans. Verizon Wireless (NYSE:VZ) earlier this month launched its "Share Everything" family data plans with the express intention of encouraging users to add additional wireless devices into their accounts. AT&T (NYSE:T) has said it hopes to generate similar behavior with its forthcoming shared data plans.

If major technology companies like Microsoft aren't including cellular connections in their devices, wireless carriers won't be able to cash in on supplying those connections, no matter how they price individual data or shared data. And Microsoft isn't the only company that has abstained from adding cellular capabilities into its devices; Apple's new line of laptops also does not have built-in cellular modems. This is particularly surprising considering Apple could leverage its iPhone and iPad scale to insert cellular into its laptops more easily and cheaply than Microsoft.

To be clear, Microsoft could well add cellular connections to future iterations of its Surface tablets. And it's clear that the company is aware of the importance of cellular: Microsoft's forthcoming Windows 8 operating system has a new connection manager that is designed to take into account the eccentricities of cellular networks. But the absence of cellular in Microsoft's first Surface tablets should give wireless carriers pause as they work to connect devices beyond phones via shared data plans. +Mike Dano