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Telcos set sights on notebook sector

Paul Kunert

For a long time traditional retailers and online resellers have almost exclusively enjoyed the consumer notebook boom, with relatively little competition from other channels, but that is about to change.

A threat has emerged from the telco community, which is offering the general public, and to a lesser extent SMEs, notebooks subsidised by mobile broadband contracts that generally run for two years.

"The biggest channel trend of the year will be for service providers [across the UK and Europe] to have sold hundreds of thousands of notebooks on the back of 3G promotional deals," said Steve Brazier, president and CEO at channel analyst Canalys.

Carphone Warehouse was the first to offer a Dell notebook bundled with AOL internet access in April 2007 - it has since sold PCs from Hewlett-Packard and Acer - but other suppliers, including Vodafone and Orange, could follow suit.

"DSGi as the only mass retail channel is starting to be threatened a bit by the supermarkets, but also by Carphone Warehouse, and I think you'll see more operators have promotions through their stores pretty soon," said Brazier.

The pressure on DSGi, which is feeling the strain from leaner online traders, is evident. It will close 77 Currys Digital Stores and recently revealed profits for the 53 weeks to 3 May collapsed 30% to £205.3m.

As notebook prices continue to fall, with figures from Gartner showing an 8% drop in the UK in the first quarter, subsidising the hardware becomes more of a proposition for the telcos, according to Ranjit Atwal, principal analyst at the firm.

"But I don't think telcos will necessarily go down the same route that they have in the mobile phone market; they are only subsidising the cheapest models," he said.

That said, Gartner data indicates that the entry-level tier of the notebook market accounts for 40% of the entire mobile PC market.

Notebook volumes are expected to swell again in 2008, with IDC forecasting 35.5% growth in mobile PCs, as the desktop sector shrinks.

But competition from the telcos, the launch of ultra low-cost portables and Dell's foray into the retail market with partners means prices are predicted to fall by 8.3% by the year end, according to Lucie Jichova, research analyst at IDC.

"Different channels will be fighting for the business," she said. "There will be increased competition in the market and that will put further pressure on prices, so suppliers will need to increase volumes."

Nick Glynne, managing director at online trader Easy Computers, said, "Four years ago it was inconceivable that a laptop would be subsidised by internet access. E-tailers who have put all their eggs in one market will find life more difficult as larger and larger volumes of notebooks are shifted through the telcos and supermarkets.

"Many e-tailers believed online was the only way forward but supermarket chains are showing a new lease of life and other sectors are emerging that were arrogantly dismissed," he added.

The analysts concur that the telcos might initially focus on consumers, but the B2B market cannot be far off their radar. However, the commercial channel could be better placed to fight off the encroachment.

Adoption of embedded 3G is set to soar as data tariffs become more realistic, but as Brazier at Canalys pointed out, the technology will have security and policy implications, which is where the channel can shine.

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