Apple and the 3G subsidy grenade

So, if you’ve watched any television or read any tech news sites lately, you probably know that Microsoft has itself a new ad campaign, and unlike the bizarre and saccharin efforts of recent memory, this new approach has teeth. Instead of trying to argue the relative merits of Windows, it goes right for the jugular by focusing solely on price. If there’s a chink in the Mac’s armor, this is it…Macs generally cost more. But what if they didn’t?

What if you could get a nicely appointed MacBook for around the cost of an HP or Dell and what if the MacBook had a feature that the others didn’t? That would be a competitive advantage that would severely blunt Microsoft’s efforts to base a comparison solely on price. That’s the 3G subsidy grenade, and I think there’s a very real possibility that Apple may be pulling out the pin and lobbing it in the general direction of the competition in the very near future.

First, let’s look at AT&T. They have recently experimented with subsidized laptops in a trial promotion which ran in Atlanta & Philadelphia. Customers who agreed to a 2 year data contract were given a substantial discount on not only netbooks, but also on larger sized laptops like the Lenovo X200, which it offered for $849 with a 2 year data plan.  According to  Lenovo’s website, that laptop costs $1555 in a base configuration with a recent on-sale price of $1169, so given that, the hardware subsidy is a minimum of $320 and a maximum of $706. Taking an average of the lowest and highest dollar amounts and you get $513, but let’s round it back to $500 for the sake of simplicity.

Applying that same kind of deal to the entry level aluminum unibody MacBook and suddenly that $1299 laptop becomes a $799 laptop. Not only that, but it now has a 3G wireless connection that can access email and the internet from anywhere there’s a cellular signal. Think of what that could mean to cloud-based computing and sync services like Apple’s MobileMe. It would basically allow all of your data to be accessed at anytime from virtually anywhere and that’s pretty powerful stuff. In fact, I wouldn’t be surprised if Apple seized the initiative and ultimately offered 3G as an option across its entire laptop range, giving consumers the choice between a lower initial payment or lower monthly data fees.

Subscription costs of 3G network

It’s not all champagne and roses however. AT&T currently charges $60 per month for its 3G data plan. That’s $1440 over the life of the 2 year contract, meaning that the cost of data fees would exceed that of the computer itself. Aside from the intrinsic value that wireless internet would bring to the product, there really are no savings to be had, simply a redistribution of cost. For some, this would undoubtedly be a deal breaker, but as we’ve seen on the Windows side so many times before, it often comes down to the final price at checkout time. Get that price low enough, even with strings attached, and people will bite. Of course, I’d be very surprised if Apple didn’t ask AT&T for a sweetheart price on a monthly data plan in exchange for market exclusivity. It would certainly be a win for both companies. Apple would get a laptop that could compete more directly on price and which had a competitive advantage in the marketplace. AT&T would gain millions of new customers who would in turn spur greater adoption of mobile broadband services. Ask anyone with an iPhone about how great it is to have internet access from virtually anywhere. It’s a feature that practically sells itself.

Perhaps this is why AT&T has been working so hard recently to increase the speed of its 3G network. Ralph de la Vega, CEO of AT&T mobility said recently in an interview with Engadget that a series of upgrades to AT&T’s infrastructure should roughly double 3G speeds from 3.6Mbs to 7.2Mbps by the end of this summer,  a move which seems to coincide rather nicely with Apple’s timetable for the release of a new iPhone and perhaps other wireless devices as well. Additionally, he mentioned that the network could handle additional increases to 14.4 and even 20Mbps in the next couple of years, which would certainly be key in attracting new customers laying the foundation for a new generation of wireless products.

Apple has never been a company to compete head to head on price. Instead, they look for ways to add value which they hope will justify the additional cost and help set them apart from the competition. If an Apple laptop can access email and the internet in wi-fi free zones where other laptops cannot, that’s certainly a competitive advantage. No doubt other PC manufacturers will strike their own deals with other carriers once Apple makes the first move, but whatever they do will have to be done in Apple’s shadow, and it’s a very long shadow indeed.

in 2008, there were approximately 46 million mobile broadband users in the United States. That number is projected to grow to more than 140 million in the next 4 years. Whoever can carve out a beachfront in this nascent market will have a competitive advantage moving forward. Subsidizing mobile broadband make sense, not only for Apple in the short-term but for the entire industry in the long-term. It’s the pin in the grenade and with the success of the iPhone demonstrating that people are ready for this technology, the time has never been better for Apple to pull the pin and deploy this new technology. If they do not, it’s only a matter of time before someone else does.

David R.