Move over, Best Buy. AT&T, Verizon Wireless, and other mobile-phone providers are moving swiftly into the business of selling computers
Consumers on the prowl for new PCs may soon find themselves heading for the local wireless carrier instead of a big-box retailer. In a move that could dramatically change the way people shop and pay for computers, AT&T (T) and other mobile-phone service providers are swooping in on the PC retailing business.
One of the earliest signs of this shift came Apr. 1, when AT&T began selling small laptop computers in Atlanta and Philadelphia for as little as $50 to people who also signed up to get at-home and mobile broadband services for two years. It was no April Fool's joke. AT&T, the biggest U.S. phone company, is "very pleased with the early results" and is considering introducing the offer nationwide, says David Haight, vice-president of business development for emerging device organization at AT&T. He wouldn't provide details on the results so far. Rival Verizon Wireless plans to offer small, inexpensive laptops called netbooks to customers this quarter. Other carriers are expected to follow suit.
With the market for cell-phone service saturated, the PC market represents a way for mobile-phone carriers to get more people to buy monthly wireless Internet-access service plans. Consumers who buy wireless Web access can save money on the up-front purchase price of a computer and, in some cases, the price of monthly access to high-speed Internet services. But the shift in who sells PCs could also mean lower revenue for computer makers if it lures buyers toward lower-priced netbooks and away from big-ticket machines. It could also crimp demand for smartphones.
Bundling Netbooks with Service Plans
Wireless service providers are already emerging as big PC vendors in Western Europe, where companies like Vodafone (VOD) and Deutsche Telekom's (DT) T-Mobile International began selling netbooks last fall. Carriers already account for 20% to 25% of all small laptops sold there, estimates Richard Shim, a research manager at consultant IDC (IDC). The U.S. may not be far behind. PC maker Dell (DELL) and retailer RadioShack (RSH) began selling netbooks for use with AT&T's wireless network several months ago.
Carriers are willing to absorb $200 or more of a netbook's cost to get more people to sign up for related wireless data-service plans as well as other offerings. AT&T, for instance, offers discounted netbooks to people who also sign up for a $60-a-month bundle of its at-home Digital Subscriber Line Internet access and its on-the-go broadband service. In one of several deals, AT&T sells the Acer Aspire One netbook, which normally retails for $300, for $100 up front.
The emergence of carriers as computer distributors could spell changes, good and bad, for PC suppliers. On one hand, consumers who may not have bought a $500 PC may be tempted by a $50 one. "It's about getting the next billion people online," says Anil Nanduri, director of netbook marketing at chipmaker Intel (INTC). "We see this as a definite opportunity for additional volumes," especially in emerging markets, he says. Researcher IDC expects netbook sales to rise from 19 million units this year to 32.6 million units in 2012.
Mobile-phone service providers and their marketing muscle could also help their computer making partners grab market share quickly. T-Mobile, for instance, has sold 60,000 netbooks since making them available in September. "You could get quick market share, provided you work well with a telco provider," says Shim. Such companies as Acer, Dell, Samsung, Hewlett-Packard (HPQ), and LG—which have announced wins with AT&T, T-Mobile, and Vodafone—could end up climbing the market-share charts.
Downward Spiral of Prices and Margins
The deals with carriers could also make it easier later for PC makers to market other electronics, such as smartphones and mobile Internet devices (MIDs, which are slightly smaller than netbooks) through the carriers. Already, Acer and several other PC makers have announced smartphone models, and Dell is rumored to have developed one. "They'll establish some brand presence and then slowly introduce a smartphone [in the following 12 to 18 months]," says wireless consultant Chetan Sharma. "This gives them expertise in the ecosystem."
By the same token, faster sales of netbooks could mean diminished demand for more expensive computers. "The [PC] industry overall gets pulled into this downward spiral of [lower average selling prices] and margins," says Roger Kay, founder of consultant Endpoint Technologies Associates.
And as netbooks take off, what happens to demand for smartphones made by such vendors as Nokia (NOK) and Research In Motion (RIMM)? Some consumers may opt for a netbook—or its smaller cousin, the MID—instead of high-end smartphones that cost about as much. A netbook offers greater battery time of 10 to 16 hours, while a phone typically conks out after five. MID screens are larger and more conducive to watching video. The category could receive a boost if, as expected, iPhone maker Apple (AAPL) releases a MID-like device with video capabilities.
Why Not Multiple Mobile Devices?
Carriers also may wish to steer consumers away from smartphones and toward netbooks or MIDs. Today a smartphone brings more profit to carriers because it uses data as well as voice services; a netbook merely gobbles data. But this might change: Users of netbooks or MIDs may be willing to pay more for access to additional bandwidth so they can surf the Web and watch movies online. T-Mobile believes consumers may also pay for such extra services as a subscription to Microsoft (MSFT) Office and Norton AntiVirus software or to virtual storage services. Some users may buy display insurance and additional tech support from carriers.
Handset vendors such as HTC don't foresee danger. "We see netbooks as being a new and emerging segment that's expanding the pie," says Steven Seto, executive director of marketing for HTC North America. After all, people buy multiple TVs for their homes. So they may buy multiple mobile devices. "It's the inspiration for what one day might happen in our industry," he says.
Carrier-sold netbooks are bad news for traditional electronics retailers such as Best Buy (BBY) and Wal-Mart (WMT). "They are undercutting Best Buy by several hundred dollars [in up-front costs]," says John Spooner, an analyst with Technology Business Research. "Companies like Best Buy and Wal-Mart are under some pressure because now they have a competitor." Best Buy did not respond to a request for comment.
Cable companies such as Comcast (CMCSA), which did not return a request for comment, could suffer as well. Instead of hooking up to fixed broadband from a cable company, some consumers may opt for wireless or bundled wireless-home offerings from a telecom provider instead. What's more, some 5 million to 10 million Americans already connect wireless notebooks to the TV and stream movies from Hulu.com and video from Google's (GOOG) YouTube, says Phil Leigh, president of consultant Inside Digital Media. "The cable TV operators will discover their audience is using mobile video and will, over time, begin to cancel their cable subscriptions," he says. "Beyond a shadow of a doubt, it's going to have big impact."