Sprint is offering new customers Compaq’s 1040DX netbook for 99 cents when bought at Best Buy with a two-year mobile broadband contract costing $60 a month.
The same netbook with service bought from Verizon Wireless or AT&T is $199.99, while a non-contract price is $389.99.
In principle, the tactic is the same used by mobile providers to bundle handsets with service. .
Sprint is fully subsidizing the hardware price in order to gain a two-year service agreement. At $60 a month, the 3G service costs the consumer $1,440, for a gross revenue for Sprint of around $1,050 over two years. So the netbook represents marketing cost.
But some consumer advocates want an end to such bundling practices, arguing that the practice ties customers to a carrier. Up to this point, most consumers might conclude that the significant discounts on handsets are worth the trade off.
In fact, some economists argue that subsidized handsets actually lead to more innovation, as users have incentives to upgrade to new devices frequently. If the general rule is that consumers buy less of products that are more expensive, severing the tie between service and subsidized handsets should reduce the frequency with which most consumers buy new devices.
To the extent that new devices drive new applications, application-based innovation could suffer.
That said, sales of unlocked devices would allow some greater degree of switching behavior. Users of CDMA handsets would have a choice of Verizon and Sprint, while GSM users would have a choice between AT&T and T-Mobile USA.
A new regime of unlocked phones should in principle also spur development of phones operating on both GSM and CDMA, though at the price of higher handset cost. To the extent that rapid mobile handset innovation and adoption lead to higher consumer welfare, regulators might want to weigh the costs and benefits of handset subsidies very carefully.
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