Carriers to revamp tablet service pricing

NEW YORK Fri May 20, 2011 7:54pm EDT

An Apple store employee gives a class on how to use the new iPad 2 during the China launch at an Apple Store in central Beijing May 6, 2011. REUTERS/David Gray

An Apple store employee gives a class on how to use the new iPad 2 during the China launch at an Apple Store in central Beijing May 6, 2011.

Credit: Reuters/David Gray

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NEW YORK (Reuters) - Mobile service providers are reworking charges for wireless connections on tablet computers to lure in customers put off by costly fees.

Carriers see tablets like Apple Inc's iPad as key to revenue growth. But high prices for the devices and more fees on top of phone plans are seen pushing consumers to bypass the cellular network and rely on free Wi-Fi services.

This is expected to result in a drop in the percentage of tablets supporting cellular, potentially making operators less relevant as tablet distributors than electronics stores.

"The tablet's more natural point of sale is retail," Nvidia Chief Executive Jen-Hsun Huang told the Reuters Global Technology Summit this week. "The question is whether carriers will find a reason to bundle tablets with other services and create a subsidy model that is really appealing."

Today, carriers limit cellular Web use on tablets by charging for each gigabyte (GB) of data downloaded. For example, Verizon Wireless charges $20 per gigabyte and AT&T Inc charges $25 for two. Sprint Nextel subsidizes tablets but charges more per gigabyte and requires long-term contracts.

Such arrangements will gradually result in more consumers opting for Wi-Fi-only tablets, according to iSuppli, which sees sales of tablets with cellular connections falling as low as 30 percent of the total in 2015 from about 60 percent in 2010.

To avoid being sidelined, some operators are planning changes.

France Telecom says it will be ready to change pricing "soon." Verizon Wireless said it would make changes eventually but was careful not to provide a timeline. Orange, France Telecom's mobile service, is looking at offering a data plan shared between smartphones and tablets.

"Shared bundles may be an answer for these customers who don't know how much they will use on the go," Anne Bouverot, head of mobile services for Orange, told the summit in Paris.

Verizon Communications sees its mobile venture Verizon Wireless taking the concept a step further by letting families share data service plans across different devices in the same way that today's voice service plans allow family members to share a bucket of phone call minutes.

"I think it's safe to assume that at some point you are going to have mega-plans (for data) and people are going to share that mega-plan based on the number of devices within their family," Fran Shammo, Verizon's chief financial officer, said at the summit in New York. "That's just a logical progression. When we get there, I have no idea."

SHARED/SESSION PRICING

Other pricing options will involve the sale of tablet connectivity for limited time periods, an executive for Sprint Nextel, the No. 3 U.S. mobile provider, said.

"What you'll see is the ability to buy sessions -- a day, a month or a week pass," David Owens, vice president for product development at Sprint told Reuters ahead of the summit. The industry could move this way in the coming months, he said.

Because consumers use tablets more sporadically than smartphones, the plans need to reflect this.

"This is not a product like a handset where you have to always be tied to a network connection," Owens said.

Other operators like AT&T Inc, which will become the biggest U.S. mobile provider if its plan to buy T-Mobile USA succeeds, were less vocal about the need for change.

John Stankey, AT&T's head of business solutions said AT&T's tablet plans are already "very consumer friendly" because while the operator does not pay a subsidy to reduce the price of the device, neither does it require a long-term contract.

But he said AT&T could possibly provide subsidized tablets in future to consumers who subscribe to a long-term contract.

Analysts say operators need to make changes, either by making the device or the service cheaper.

"In the absence of higher subsidies or lower connection fees, the logical channel is not the carrier," CCS Insight analyst John Jackson said, ahead of the summit.

Tablet makers, trying to challenge the dominance of Apple's iPad, could also be hindered if the carriers charge too much. Rival tablet makers include Samsung Electronics Co and Motorola Mobility and computer makers like Huawei Technologies and Dell Inc.

Even if carriers subsidize iPad rivals, "consumers might not want to lock themselves into an iPad competitor" that could end up being upstaged by the next iPad, Gartner analyst Michael Gartenberg said. "The carriers have a long way to go to figure out the right business model."

(Additional reporting by Leila Abboud in Paris, Noel Randewich and Poornima Gupta in New York; Editing by Gary Hill)

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