By now you’ve probably heard about Amazon’s(s amzn) revolutionary new mobile data pricing plans for the Kindle Fire HD 4G. Amazon is charging just $50 for an annual LTE subscription on AT&T’s(s t) for 250 MB a month, plus throwing 20 GB of cloud storage into the mix. Compared to the pricey monthly data subscriptions most carriers charge for tablet plans, the plan seems quite the steal if you only want basic connectivity. But be warned: Amazon seems to be making that money back by other means.
You’ll notice there’s a $200 price differential between the baseline LTE Fire HD and the Wi-Fi-only version, which is an unheard of mark-up. To be fair, the low-tier LTE tablet comes with an automatic 16 GB storage upgrade, so the price difference between a 32 GB LTE device and a 32 GB Wi-Fi device is $130, which happens to be the same premium Apple charges for 4G connectivity on its iPads.
The thing is that Apple is known for spec-inflation. Amazon has the opposite reputation. As my colleague Kevin Tofel points out, Amazon has always taken the attitude that it makes its money on services and cuts its customers a deal on hardware. Amazon CEO Jeff Bezos made the same point at the new Fire’s unveiling, claiming it makes its money when customers use its products, rather then when they buy them.
Well, apparently its LTE tablet is the exception. Amazon is playing the same pricing game as Apple, grossly overcharging customers for upgrades and additional features. If it really cost $130 to add LTE to a device than there would be no such thing as $150 LTE smartphone, yet MetroPCS(s pcs) somehow manages to sell two such devices without any subsidy.
Amazon is taking the same attitude of many of its tablet-making peers: 4G is for suckers.
So why the big mark-up? Amazon appears to be embedding a very expensive cellular modem into the Fire. It hasn’t revealed detailed specs just yet, but it claims to have engineered a modem that supports 10 bands, which includes multiple LTE frequencies as well as global HSPA and 2G airwaves.
Cramming that many radios and that many bands into a device isn’t cheap and most likely involves using new active antenna technology developed by companies like Ethertronics. But each new band requires its own power amplifiers, filters and other components, yet Amazon has packed them into a modem only 2.2 millimeters thick. It’s a hell of an engineering feat, and Amazon most likely did this to save it supply chain headaches. Rather than design separate tablets for different regions of the world or different carriers, it can ship the same device globally.
I doubt such a modem costs $130 to manufacture, but even if it does, Amazon could have saved a lot of cost by scaling down its radio ambitions. Instead it chose to make a universal device and pass the expense along to its customers.
Maybe when it comes to tablets, 4G is an unnecessary luxury – those who want it can afford to pay for it. But if tablet makers keep treating their customers like chumps, mobile broadband will always remain an overpriced luxury.
Image courtesy of Mind of the Geek