Listen Up, Carriers: 3G Tablets Need a New Pricing Menu
It’s quite the coup. Last night Samsung announced that all four major U.S. wireless carriers will be selling the Galaxy Tab, a sleek 7-inch Android tablet. There were just two critical pieces of information missing: the price of the device and the data plan. There’s no question that consumers will be enticed by this and other shiny slates when they walk through the door of the carrier stores. But if the pricing is anything like what carriers offer on today’s 3G netbooks, they’ll probably walk right back out without one. Unless service providers can structure data plans to be affordable and fair, the 3G tablet market will hit the same wall.
Today you can get a 3G netbook (HP Mini 1151NR) from Verizon Wireless for just 19 bucks on a two-year contract. Actually, make that $1,459—the total cost when you add in the $59 monthly fee for 5GB of data. (It’s $960 when you opt for the 250MB plan, which no one should do.) AT&T’s plans are similar, at $60 for 5GB and $35 for 200MB. T-Mobile charges a more reasonable $39 for 5GB and $24.99 for 200MB, while Sprint doesn’t sell any subsidized netbooks directly. Overall, 3G netbooks haven’t moved in significant volumes because of that steep total cost of ownership. Who wants to pay that much for a secondary PC? Tablets are no different, which is why it's time to offer a broader menu of pricing options.
AT&T and Apple were wise to go a different route than 3G netbooks for the hot-selling iPad. In exchange for shelling out $629 for the Wi-Fi + 3G device—$130 more than the entry-level Wi-Fi-only iPad—you pay just $25 per month for 2GB of data (or $14.99 for 200 MB). Total cost over two years is $1,229, $230 less than that “$19” netbook. Yes, you’re getting fewer bytes than if you opted for a subsidized mini notebook, but we suspect most users won’t go beyond that 2GB ceiling in a given month.
The best part about the iPad Wi-Fi + 3G is that there’s no monthly contract. You just activate (or de-activate) the mobile broadband when you feel like it. iSuppli estimates that as many as a third of iPads sold have 3G connectivity, which is pretty impressive. But that’s the iPad. Consumers have consistently shown that they’re willing to pay a premium for Apple’s hardware. In fact, Best Buy’s CEO said this week that he estimates the iPad alone is cannibalizing sales of laptops to the tune of 50 percent.
So where does that leave the rest of the field? Scrambling to offer plans that are affordable and flexible, paired with device pricing that meets or beats the iPad’s. If I were Verizon, Sprint, and T-Mobile, I would experiment with multiple pricing models, including the following. For each scenario I’ll provide the proposed price of the Galaxy Tab and where applicable a high-end smart phone ($199).
The New 3G Tablet Pricing Menu
Subsidized Tablet with Affordable Data: There’s no way that a Samsung Galaxy Tab shopper is going to pay $59 per month for data, especially for something that’s not a full PC. Something like $40 per month sounds more reasonable for those willing to sign a two-year contract. That may still sound steep, but some may find tablets so versatile that they ditch their smart phone in favor of a cheap voice-only phone.
Tablet Price: $299 ($100 more than a smart phone seems reasonable), plus $40 per month for data.
Two-Year Total: $1,259
Shared Data Plans with Smart Phones: For those who prefer to pay less up front, carriers should offer an option to buy a smart phone with a data plan and then share that bucket of bytes with a tablet—provided you sign up for a two-year contract. In this case you would have to pay more for the device than you would if went the traditional subsidized route, plus $5 more per month for data than you normally would (kind of like a service charge for an extra cable box/DVR in the home).
Tablet Price: $399, plus $35 per month for data
Two-Year Total: $1,239
Mobile Hotspot Bundles: Now that you can buy smart phones with built-in mobile hotspot apps, you could easily share that data with a tablet. Sprint charges $30 per month for this feature for unlimited data (which includes 4G), while Verizon Wireless’ plan is $20 for 2GB. AT&T and T-Mobile do not yet offer phones with this capability. (Tethering via USB is sometimes an option, but it’s inconvenient.) I think carriers should sell these smart phones and tablets as a bundle. You would get the slate at a discount but would still need to pay the separate hotspot data fee. Another option could be pairing a dedicated mobile hotspot device like the MiFi or Sprint Overdrive with a tablet, though the higher cost of data ($59 per month) would mean carriers would charge less for the device bundle.
Hotspot Phone + Tablet: $499, plus $30 for data
Two-Year Total: $1,219
Mobile Hotspot Device + Tablet: $349, plus $35 for data
Two-Year Total: $1,189
No-Contract Pricing, Including Session-Priced Data: One of the options should mirror AT&T’s, where the customer can pay more for the device but less for data per month—no contract required. This is something that T-Mobile already does with its phones. AT&T’s going rate of $25 per month for 2GB seems fair. And you shouldn’t be limited to signing up for a whole 30 days at a time. Session-based pricing could cost anywhere from $3 to $5 per day.
Price of Tablet: $599, plus $25 per month for data
Two-Year Total: $1,199
Of course, I don’t expect all of the big four carriers to provide every option—it could very well get confusing—but I do hope that consumers are offered at least two of these menu options. Samsung and others will be selling Wi-Fi-only versions of their tablets, but built-in mobile broadband makes these devices a lot more useful on the go, whether it’s for surfing the web, streaming video, or downloading apps. The tablet revolution is here, but unless service providers get more nimble with their plans the vast majority of consumers will stick with Wi-Fi.
Editor-in-chief Mark Spoonauer directs LAPTOP's online and print editorial content and has been covering mobile and wireless technology for over a decade. Each week Mark's SpoonFed column provides his insights and analysis of the biggest mobile trends and news. You can also follow him on Twitter.