AT&T and Verizon Wireless bet on netbooks

Roger O. Crockett and Olga Kharif
25 May 2009

For the country's two dominant wireless phone carriers, AT&T and Verizon Wireless, the arithmetic is clear. Cell-phone penetration in the U.S. is approaching 90% of the population, and the recession is damping enthusiasm for pricey new phones and services. So to avoid a slowdown in sales growth, both cellular giants are getting into a new game: personal computers.
AT&T jumped in earlier this year selling the stripped-down laptops called netbooks at its stores in Philadelphia and Atlanta. These devices are already a big hit for computer makers, priced in the $300-$500 range at retail. Now the carriers want to sell them—much the way AT&T sells Apple's iPhone—by discounting the device but making up revenue with two-year contracts for expensive data plans. Long-term, the carriers aim to expand into a whole range of computers, Net-ready cameras, game consoles, and other such products. The goal: to find fresh revenue streams and stoke demand for their new, fourth-generation (4G) data networks, expected to start rolling out next year.
The netbook idea appears to have legs. On May 17, Verizon Wireless began selling Hewlett-Packard netbooks discounted to $199 with a two-year data contract starting at $40 a month. "We are ramping up very nicely," says Verizon Wireless CEO Lowell McAdam. Two days later, AT&T announced that by midsummer it would broaden its own netbook experiment to all its stores nationwide, offering Dell, Acer, or Lenovo  products. If Sprint  and T-Mobile USA follow suit, netbook sales could top 2.1 million units in the U.S. this year, with carriers accounting for 22.5%, market researcher IDC estimates. "We think we are really at the next big growth area of wireless," AT&T Mobility CEO Ralph de la Vega recently told BusinessWeek.
Pricing is still a work in progress. In Atlanta, AT&T subscribers who sign up for a two-year service contract can snag an Acer netbook for as little as $50, but they must shell out $40 or $60 a month for either 200 megabytes or 5 gigabytes of wireless capacity, used for everything from messaging friends to posting photos on Facebook.
Similarly, Verizon customers who pay $60 a month for a data plan can get an HP netbook for $199. "You are not going to find too many laptops at that price point," says Verizon Wireless director of marketing Michael Willsey.

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