business

You won't ever talk on AT&T's new wireless phone product, but it may shake up the personal computer market by sharply undercutting prices.

AT&T's product is a small personal computer called a mini-notebook, or netbook, which is slower and smaller than a laptop. Netbooks are already available in retail stores, but AT&T is selling models from Dell, Acer and LG at drastically lower prices: $50 to $250 for a computer than normally goes for $300 to $600.

But there's one catch that's familiar to cell-phone buyers: Customers have to buy a qualifying wireless Internet access service called "Internet at Home and On the Go" for a typical price of $60 a month. The plan is for data only, and is sold in addition to existing AT&T cell-phone plans.

That could spell trouble for computer retailers if the cell-phone netbook is introduced nationwide. So far, the low-cost mini-laptops are available from AT&T only in Philadelphia and Atlanta, where it is conducting marketing trials. But both AT&T and Verizon Wireless are expected to offer similar products nationwide later this year.

AT&T operates 34 company-owned stores in Minnesota, including 22 in the Twin Cities metro area. It also sells cell-phone service through Best Buy, Radio Shack and Wal-Mart stores. It's too early to say whether AT&T would sell netbooks nationally through non-AT&T stores, said Dave Fine, vice president and general manager for AT&T's mobile and consumer markets in Minnesota.

Netbooks have slower processors and smaller screens (typically 7 to 10 inches), shrunken keyboards and lower-capacity disk drives. But they can handle routine computing tasks and browsing the Internet.

"The netbook is targeted at an audience who require a basic computing experience," said Matthew Wilkins, an analyst at California research firm iSuppli. "We believe the target audience to be teenagers, first-time PC buyers, perhaps senior citizens, and family households looking to purchase perhaps a second, third or fourth PC."

"I view netbooks as being between smart phones and laptops," said Philip Solis, an analyst for ABI Research in Oyster Bay, N.Y. "Some people will choose a netbook instead of a laptop, but for others the netbook will be sufficiently weaker, slower and smaller that it will be more of a secondary device to a regular PC."

How can AT&T sell netbooks at well below their retail prices? It's a subsidized business model like the one used to provide cheap or free cell phones, even though the phones really cost hundreds of dollars each. AT&T gradually recoups the cost of phones, or in this case the cost of netbooks, out of the monthly service fee. Computer retailers can't offer subsidized pricing because they don't recoup a PC's actual cost through monthly fees.

"The rationale for the netbook offering is that cell-phone companies see their growth starting to plateau, and they are looking for something that will allow them to continue growing," said Richard Shim, a personal computing analyst at Massachusetts research firm IDC.

If AT&T continues subsidizing netbook prices, it could give a boost to the small PC's growing popularity. Netbooks are expected to account for 7 percent of all PCs sold this year, posting a nearly 90 percent gain in unit sales as both laptop and desktop PC unit sales decline, Shim said.

The bad news for computer makers is that the low-priced netbooks appear to be cannibalizing sales of higher-priced laptops. IDC expects that netbooks will account for about 13 percent of all portable computer sales worldwide this year, while iSuppli predicts netbooks will be 14 percent of all portables.

"The question is whether the cell-phone networks can support the amount of Internet traffic that these netbooks will generate," Shim said.

The AT&T marketing trials in Philadelphia and Atlanta seem intended to learn more about that. In the trials, the $60-a-month service plan caps a netbook's monthly Internet traffic at 5 gigabytes of data, Fine said. A minimal $40-a-month plan caps usage at 200 megabytes. AT&T says its cellular data download speeds in major cities range from 700,000 bits per second to 1.7 million bits per second; that's the equivalent of a relatively slow home broadband connection.

Besides using the cellular network to reach the Internet, trial participants who travel can use the netbooks at Wi-Fi hot spots. The monthly fee entitles them to use of AT&T's 20,000 for-pay hot spots in businesses such as McDonald's and Starbucks.

Added Shim, "I think this discounted netbook offer is something the cell-phone companies will throw out there and see how it works -- and what customers want."

Steve Alexander • 612-673-4553