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Mobile Internet Pricing Still Restrains Demand

Although cellular modem shipments in 2006 were below expectations, the momentum is building for this market to reach nearly $10 billion by 2012, a 47 percent compound annual growth rate, according to ABI Research.

ABI Research principal analyst Dan Shey says, "The fundamental drivers for sales of modems are the proliferation of 3G networks and better cellular broadband pricing. Operators made significant efforts in 2006 to upgrade their networks to 3G technologies, particularly in North America and Europe. Operators are also tempting customers with various cellular broadband pricing options, although the total monthly costs are still too high to encourage significant modem adoption by consumers."

PC Cards represented the majority of sales in 2006. Internal modems did not meet sales expectations, but they will begin to lead sales starting in 2009. Although it's not clear to me exactly what ABI believes will stimulate this dramatic shift in consumer demand.

"The value chain for internal modems is complex with several issues still needing attention particularly related to distribution," notes Shey. "However, operators, laptop vendors and chipset manufacturers are committed to this form factor and they continue to work together to develop the embedded modem market."

2006 also saw the introduction of two new modem form factors, the USB modem and the 3G/Wi-Fi router. The ubiquity of the USB port, not only in laptops but also in desktops, will lift the USB modem to second place in worldwide sales, late in the forecast period.

One question remains unanswered, why would computer vendors include internal cellular data modems in PCs when the vast majority of potential users still say that service pricing from carriers is over-priced? It clearly adds to the cost of PCs, and yet benefits a very small segment of early adopters where service price is not an issue.

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