AT&T(s t) has finally come to the conclusion that subsidies don’t make sense when it comes to selling tablets. Over the weekend, Engadget uncovered a document stating that AT&T would it would start selling all its 3G-4G tablets at full price, eliminating the contracts that come with them.
The Verge confirmed with store representatives that the policy change will start Monday, and in fact, AT&T’s $35/3 GB contract tablet plan has disappeared from its website. AT&T only subsidized Android(s goog) slates, not the iPad(s aapl), so the impact won’t be huge. AT&T also isn’t the only operator to dump tablet subsidies. Verizon did so in June when it launched its shared data plans. But these policy changes are significant.
As my colleague Tom Krazit points out smartphones are fundamentally different devices than tablets. While mobile data connectivity is the smartphone’s primary reason for existing, cellular broadband is a secondary consideration for customers investing in a coffee-table computer. Consumers have shown they’re willing to pay the tablet’s steep price tag, but they’ve shown less willingness to invest in expensive mobile data plans and long-term contracts when Wi-Fi is so readily available.
By eliminating tablet subsidies, AT&T is discarding the $5 a month surcharge on tablets and pretty much normalizes data pricing across individual smartphone and tablet plans. AT&T customers will soon offer customers two choices: sign up for an individual no-contract plan (250 MB/$15, 3 GB/$30, or 5 GB/$50), or for one of its forthcoming shared data plans, which allows customers to add a tablet to pooled data bucket for an additional $10 a month.
But AT&T should go one step further. Now that customers are paying the full costs of their slates, Ma Bell should charge less for tablet data than it does for smartphone data. Here’s why: Subsidies aren’t traditional discounts or sale; they work much more like mortgages. Carriers give you an expensive device at a low up-front cost, but recover the subsidy through premiums factored into your plans over the next two years. If there’s no subsidy then it stands to reason customers shouldn’t pay those higher rates. T-Mobile has already adopted this approach, charging much cheaper data and voice rates to customers who bring their own devices.
I won’t pick on AT&T too much. Ma Bell is actually the most progressive (or least regressive) operator when it comes to tablet data plan pricing. In a recent analysis of U.S. carrier data plans, we found that AT&T had the cheapest per-gigabyte rates for tablets and mobile broadband than any carrier. Even T-Mobile’s new discounted value plans are in some cases more expensive than AT&T’s regular rates. For the same $30 price AT&T charges for 3 GB a month, T-Mobile only gives you 2 GB.
Operators are beginning to realize that tablet subsidies aren’t the way to go. Now they need to eliminate legacy subsidy pricing models. AT&T and Verizon’s (s vz)(s vod) shared data will solve the problem in part by allowing customers to draw tablet and smartphone data from a common pool – though they have other problems. But operators really want the tablet revolution to occur over their networks and not over Wi-Fi, they need to make tablet data cheaper.
Approved photo courtesy of Shutterstock user Stuart Miles