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Is there a market for prepaid tablets?

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While the tablet market continues to boom, the high price of data services is hindering the sale of 3G-enabled tablets, IDG’s Bob O’Donnell told Computerworld recently. But just as prepaid smartphones are filling a much-needed gap, cheap tablets without contracts could reach a massive audience of consumers who can’t afford a 3G-enabled tablet for $500 or more plus monthly service. So where are the cut-rate prepaid slates?

“The 3G thing on tablets is bogus,” O’Donnell said, adding that “hundreds of thousands” of the gadgets are gathering dust in inventory. “Nobody wants to pay for that data.”

Where are the prepaid tablets?

Unsurprisingly, the major carriers haven’t jumped into the prepaid tablet fray: AT&T appears to be the only one tinkering in the space. It quietly offers a refurbished Samsung Galaxy Tab for $350 without a contract and two data plans starting at $15 a month. I couldn’t find a tablet offering from MetroPCS, Sprint’s Boost Mobile, TracFone or Cricket — four of the biggest players in the prepaid space.

That’s surprising, because prepaid has exploded in mobile over the past two years as budget-conscious consumers look for alternatives to pricey, long-term contracts. And judging by their phones, those prepaid users aren’t feature phone-toting Luddites who are just learning how to text: MetroPCS, for instance, was the first U.S. carrier to sell an LTE handset, and Sprint’s Virgin Mobile may have a hit on its hands in the upcoming Motorola Triumph, which runs Android. These consumers are looking to do things like play games, surf the web and upload photos without paying for the newest operating system or lightning-fast service. Similarly, some budget-conscious tablet owners will be willing to pay for data usage in advance, especially if they paid per megabyte, say, rather than in a monthly allotment.

These prepaid handsets are substantially inferior to the cutting-edge devices in the portfolios of postpaid carriers. For example, my colleague Kevin C. Tofel has documented how MetroPCS’ LTE service pales in comparison to Verizon Wireless’ new network. So while successful prepaid tablets wouldn’t perform on par with the iPad, the attractiveness of an affordable, pay-as-you-go offering would appeal to a sizable audience.

A need for new pricing models

The high price of data is shackling sales of cellular-enabled tablets, especially as unlimited data plans are disappearing. New plans from Verizon Wireless, for instance, start at $30 for 2 GB per month — an amount that can be reached by listening to an hour of streaming music and watching an hour of video every day, according to AT&T’s data calculator. While that may seem reasonable for a smartphone user, it’s not for a tablet user, since tablets make it easier to watch, play and listen to content. Meanwhile, many of us rarely need cellular connectivity because our tablets are typically used at home, in hotel rooms or in other places that usually have Wi-Fi. Stand-alone prepaid plans for tablets should be flexible when it comes to data usage, enabling users to load their accounts when they need to and ignore those accounts when they don’t.

It’s clear that carriers must offer tablet-friendly data-pricing models if they hope to grab a piece of the expanding industry. O’Donnell pointed at a single plan that would enable a user to access data across multiple devices. And Adrian Kingsley-Hughes of ZDNet suggested that an easy way to accomplish that would be to make tethering cheaper. (Kingsley-Hughes rightly points out that “a GB is a GB,” after all, and the elimination of tethering fees could encourage users to consume more data, forcing them to upgrade their monthly plans.) Another option for carriers could be the pay-as-you-go plans that have become so popular for mobile phones.

The iPad continues to rule the space, but tablets are becoming increasingly affordable for those who don’t want to spend $500 for a complementary device. That’s especially true for those who find postpaid data plans prohibitively expensive but who would be willing to purchase cellular access to data only when they need it. Which means there could be a sizable market for users who are happy to trade some functionality in exchange for cheaper service.

Question of the week

Can prepaid data services boost lagging sales of 3G tablets?